14 Apr How can you afford your personal insurance?
How can you afford you personal insurance?
We know that sometimes it can feel like the cash you have coming in is not enough to cover all of the bills you need to pay. Covering all of our bills can be a stressful balancing act at times, but personal insurance (life, TPD, trauma and income protection) is far too important to fall by the wayside.
Too often we hear that people are not taking out personal insurance because they just can’t afford it. The good news is you can ease the cash flow burden of personal insurance without sacrificing your cover, you have the option of paying your premium from super by holding your cover in super.
What can you fund through super?
You can’t fund all personal insurance through super. We’ve outlined for you below which cover you can and can’t hold through super.
Cover you can hold/fund through super
• Total and permanent disability (TPD) – ‘any’ occupation
• Income protection
Cover you can’t hold/fund through super
•Total and permanent disability (TPD) – ‘own’ occupation
•Trauma (policies started after July 1 2014)- existing policies taken out pre July 1 2014 can be held through super
Why aren’t you allowed to hold TPD ‘own’ occupation and trauma cover through super?
Basically, you may have problems withdrawing from super the money paid out from a claim. It wouldn’t be very helpful to have to wait until retirement to access your claim payout for a problem you’re having now! This is because a successful claim on these policies may not coincide with a condition of release for your super being met (conditions or release being permanent or temporary incapacity, a terminal medical condition or death).
What are the benefits of funding through super?
Paying your premiums from super will not affect your day-to-day cash flow. You can find comfort in knowing that you will still be able to make premium payments, despite possible periods of cash flow issues.
By paying your premiums from super, you are using pre-tax dollars instead of your take-home, after-tax pay.
What are some of the issues of funding through super?
You can’t claim a tax deduction for income protection premiums paid from your super fund. Generally, we prefer for our clients to hold their income protection policies outside of super. However, if cash flow is tight, be aware that it is still an option.
Any claim benefits received from a super policy are paid into your super fund. This means that accessing your claim benefits may take a little longer. Ensuring you have up-to-date binding nominations in place is crucial to make sure benefits are paid out per your wishes in the event of your death.
Reduction of your super balance
Premiums being taken out of your super account means you’re going to have a lower super balance.
TPD – ‘any’ occupation only
You cannot hold ‘own’ occupation TPD through super and claiming on an any occupation policy may be more difficult than on an own occupation policy. (Note that own occupation cover does cost more).
Taxation of benefits
Depending on whom a benefit is being paid to, tax may be payable on the claim benefits.
What should do? It is not a black and white answer for whether you should or shouldn’t hold your insurance through super. You need to carefully consider your circumstances and cover needs. Bear in mind that
Please feel free to contact one of our advisers at Wealth and Retirement Solutions and we would be happy to discuss your options with you.
Please note that the information provided in this blog has been provided as general advice only. We have not considered your personal financial circumstances, needs or objectives. Most importantly, seek advice on superannuation and related tax matters from a licensed professional financial adviser before making any decisions.