Super fund income protection
Did you know you can get Income Protection as part of your superannuation fund? Income Protection through your super is a great way to get cover you might not otherwise afford in a stand-alone policy. But it’s important you’re aware of your limitations of such an arrangement.
How does it work?
Income Protection provides up to 75% of your normal income for a certain period if you find yourself unable to work due to illness or injury. With Income Protection, you’ll be able to cover most of your everyday expenses, including rent or mortgage repayments, bills, and even groceries.
Income Protection differs to worker’s compensation, which is provided only if you are injured as a result of a workplace activity. It is therefore important you don’t rely on worker’s compensation alone to cover you should you become seriously ill or injured outside the workplace.
Benefits of Income Protection through your super fund
The main advantage to having an Income Protection policy through your superannuation policy is that it can be easier to manage. Your premium payments are taken from the money accumulated in your super account. That means you’ll face no out-of-pocket expenses.
A policy through your super can also be marginally cheaper than one taken outside of it, although this is usually because you receive more basic cover without as many additional benefits.
Disadvantages of Income Protection through your super fund
There are a few things you need to consider before you commit to Income Protection through your super fund.
To begin with, buying Life Insurance through your super fund means Income Protection is included in the concessional contribution cap of $25,000 a year. You may face serious consequences if you exceed this cap, so if you have any concerns it’s important you talk with a qualified financial advisor.
Also, while your premiums are tax-deductible to the fund, your payments after you make a claim are taxable, just as your regular income would be (but this is the case regardless of where you have an Income Protection policy).
More importantly, you need to go through more levels of scrutiny once you make a claim, since your claim needs to be approved by the both insurer and the fund trustee. If the claim is approved, the insurer pays the benefits to the trustee who then sends it to you. That means there may be a delay in receiving any benefit.
Finally, keep in mind that Income Protection through your super fund usually comes with a default level of cover, although you can pursue a more comprehensive policy depending on your circumstances.
|It may be cheaper||The levels of cover can be limited|
|There can be significant tax advantages||You could exceed your concessional contributions cap, leading to severe consequences|
|You can pay your premiums even if money is tight||Tax may be payable on some benefits|
|It’s easy to manage since premiums are automatically deducted||If you don’t nominate a beneficiary, your super fund decides who gets your payout in the event of your death|
|Depending on fund and insurance, you may not have to have a health check||There can be delays in the payout of your benefits|