Income Protection Insurance Superannuation – Is It Right For You?

income-protection-insurance-superannuation-example1 If you rely on your salary at the end of every month to pay your bills, serious illness or involvement in an accident could have a devastating impact on your well-being and that of your family. Income protection insurance Superannuation is an essential component of any risk insurance portfolio because it pays you a monthly benefit in case you are in such a situation. Income protection insurance can be obtained through your superannuation and many Australians opt for this, especially when the super is funded by their employers. However, it is important to consider the benefits and drawbacks of holding insurance in super as opposed to outside it.

Affordable and favorable

One of the advantages of holding income protection insurance in your super fund is that the rates are very affordable. This is because the policies are purchased in bulk. In addition, you do not have to undergo medical tests or provide a lot of personal information. Automatic underwriting is applied to all the super members receiving such cover. This can be beneficial for individuals who would otherwise receive unfavorable terms as a result of pre-existing medical conditions, old age or a smoking habit – the same rates and terms are given to all the members.

Sufficient cover

An employer-sponsored or industry super fund typically has a benefit period no longer than two or five years. While this is sufficient recovery time for most people, there are certain illnesses or injuries that could keep you away from work a lot longer. Some people even opt to top-up their income protection insurance. Since they already have income protection through their super funds, they purchase another policy outside super whose waiting period ends when their super benefits stop coming in.

Indemnity vs. agreed value

Superannuation only offers indemnity income protection insurance policies. This means that your benefit period will be based on the amount you earn in the months preceding your illness or accident. Most self-employed individuals prefer agreed value policies that provide benefits based on the amount earned when applying for the policy. This is because your income stream may not be as steady as that of an employee receiving a steady income. As such, if your income is dependent on the performance of your business, it may be beneficial to obtain income protection insurance from a retail provider or insurance provider. Visit us now for more information about offers of indemnity income protection insurance policies

Tax deductions

Another consideration you need to make concerns the tax deductibility of your insurance premiums. The ATO provides a tax deduction for income protection insurance premiums because they are paying for income benefits. Although the premiums for income protection insurance are usually fully tax deductible, this is not the case for insurance held in superannuation. Premiums are only deductible to the extent that the terms of the policy align with the temporary incapacity release condition that is provided in superannuation regulations. As such, only a portion of your premiums may be tax deductible.

When deciding how to obtain your insurance, it is important to carry out an income protection insurance comparison of the different policies both outside and inside superannuation. You should also speak to your financial planner for an expert assessment of your insurance needs so you know how much cover you require and the best way to acquire it.

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