What is the difference between insurance ‘inside super’ and ‘outside super’?
When you’re considering insurance cover for you and your loved ones, there are different ways you can pay your premiums; inside super, outside super or both.
Do cover options differ?
You can set up cover for life, total & permanent disability and income protection cover inside your super fund.
Due to legal limitations around what type of cover can be offered through super, there are certain benefits and options that aren’t available when you set your cover up inside your super fund.
If you choose to pay your premiums using Superlink, you can pay for part of your cover from your super fund and the rest outside of it. By using this payment structure, you can also access certain benefit options and other cover options that are only available when your life cover is paid for outside of your super fund.
What’s the impact on your super fund balance?
Although you won’t be managing the monthly or annual premium payments, your super fund will be. When considering paying your cover through super, be sure that you have a sufficient super balance to support the premiums.
If you don’t have enough funds in your superannuation account to cover your insurance premiums, there is the risk that your policy will lapse. So it’s important to consider whether your usual super contributions are more than your premiums, otherwise your super account balance will reduce
Who owns the policy?
An insurance policy held through a super fund will be owned by the trustee of the fund, not the life insured (the person applying for cover). This means there is a different process in place if you need to make a claim and the trustee will manage the release of the claim benefit which is paid by the life insurer into your super fund.
What happens at claim time?
By holding your cover through super, your insurance benefit is initially paid to the trustee of the fund who then authorises the release of the funds directly to you or your beneficiaries. Benefits held outside of super are generally paid direct by the insurer.
The same tax treatment doesn’t apply to income protection premiums when held through a super fund. The tax deductible premiums are usually claimed by the super fund.
At claim time, the tax rules are also different for cover held through a super fund.
To fully understand the tax implications of holding your cover through your super, it’s always best to speak to your accountant or tax professional.
To learn more and compare your life insurance options with Lifebroker, call 13 54 33 to speak to a qualified life insurance consultant.