How Does Income Protection Insurance Work with Super?
A disability is any condition that restricts a person’s mental, sensory or mobility functions, and consequently, some forms of disability can prevent a person from working – either temporarily or permanently.
Although some live with lifelong disability, others suffer life-changing accidents that render them disabled. Whatever your circumstances, you may benefit from some income security. There are many ways to secure your income, but whether you decide to hold income protection insurance within superannuation or not depends on your situation.
Income Protection Insurance: Inside vs Outside Super
Income protection insurance, in general, pays you a stream of income for a particular period if you cannot work. However, there are some differences between holding it inside and outside super.
One potential advantage of taking out your income protection insurance within super is that there is no effect on your regular cash flow.
In this case, individuals can cover the premium costs of the policy by having them deducted directly from their accumulated super balance.
The super fund trustee must meet the condition of release for the insurer to settle the income protection benefit. Individuals who take the policy outside super only need to fulfil the insurance contract terms. In addition, some extra features can be offered by insurance that sits outside super, e.g. if your child suffers a serious accident or illness you may be covered to take time off to care for them full time.
Which Is Better?
There are positives and negatives to each option, and individuals should consider their needs and personal circumstances.
People with tight budgets, such as young families and entrepreneurs with new businesses, might find that taking out income protection insurance through their super fund is a benefit. The same applies to people who don’t need any extra features. However, individual needs will always vary.
Insurance outside super can be suitable for people with a substantial and steady cash flow, or those who need extra features as part of their insurance, but professional advice is always recommended.
Ultimately, the decision on whether or not to buy insurance through super depends on the cover you need and whether your fund can provide it. You should compare the costs and terms among various insurers.
Contact us if you’d like to find out more.