insurance inside super - should you keep it?
If you’re a member of a super fund, it’s more than likely you have insurance through your super.
The cost of this insurance is deducted from your super account balance – so you’re effectively paying for it – unless your employer is covering the cost on your behalf.
Often insurance can seem overwhelming, especially when it comes to deciding whether to hold on to it, or adjust it so it better suits your needs.
To help you, we’ve identified some key things to ask to yourself when it comes to your insurance inside super.
New rules affecting insurance inside super
Before we identify some key questions to ask yourself, it’s important be aware of recent changes to insurance inside super that came into effect on 1 April 2020.
The government has implemented changes affecting members with a super balance under $6,000. The idea behind the changes is to ensure that these members retain as much of their super savings as possible – and it’s not eroded by premiums for insurance that they don’t know about or might not need.
As a result, you now need to ‘opt-in’ for insurance if you want to keep it when you’re under the age of 25 and your super balance is under $6,000. If you don’t opt-in for it, it will automatically be switched on when you reach 25 and your super reaches $6,000.
1. Is insurance inside super something you need?
Deciding whether you need to have insurance, is something that only you can answer as it really comes down to your own personal circumstances. We’ve listed some scenarios below to help you with this.
Scenario 1 — dependents
If you have people depending on you financially, and you passed away unexpectedly, could your dependents continue to live the same lifestyle without you? How about if you were ill, or injured, and as a result unable to work for a period of time, or permanently – what then?In these cases, having Death only, or Death and Total & Permanent Disability insurance, could help to provide financial security.
Scenario 2 — no dependents
If you don’t have anyone financially depending on you, but you were unable to work for an extended period of time due to an illness, would you be able to cover your expenses without an income? If not, perhaps Income Protection insurance is something to consider.
2. Which types of insurance inside super are most appropriate for you?
There are three main types of insurance cover available through your super.
Death insurance cover
This type of cover is designed to provide your family, or any nominated beneficiaries, with a sum of money if you were to pass away. It may also come with Terminal Illness cover which provides financial support if you are diagnosed with a terminal illness.
Total and Permanent Disability (TPD) cover
If you were unable to work ever again in an occupation that you are suited to, because of a disability, this type of cover pays you a lump sum which could help to pay for things like your living expenses or repay any debt you may have, such as mortgage.
Income Protection (IP) cover
If you’re injured or suffer an illness, or have a disability and are unable to work for a temporary period of time, this cover would provide you with a short-term income stream to help you pay for things like living expenses or cover debts.
3. How much insurance inside super do you need?
Insurance calculators are a good starting point in determining how much insurance you may need, depending on your personal circumstances.
You may also want to consider speaking to a financial adviser as they’ll be able to assess your situation and advise which types of policies could work best for you.
Some things you may want to take into account include:
The amount you’d need to cover your current lifestyle if you were unable to work for an extended period or permanently
Whether you or your family could rely on other financial resources if you were unable to work or passed away
Any debts you have such as a mortgage.
Bottom line: when deciding if having insurance inside super is beneficial, it really comes down to being clear about your own circumstances and what’s best for you. A financial adviser may be able to help in making this decision.
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at 1 April 2020 and may be subject to change. The information in this article is general in nature and does not take into account your objectives, financial situation or needs. A Product Disclosure Statement (PDS) or other disclosure document may be available for products and services described on this website. You should obtain and consider the PDS or other disclosure document relating to the product or service you are interested in before making any decision about whether to acquire or continue to hold the product or service. You can obtain a copy at mlc.com.au or by calling us on 132 652. Any insurance cover provided is subject to the terms and conditions contained in the insurance policies issued to the Trustee by the Insurer. You should consider obtaining independent advice before making any financial decisions based on this information. An investment with NULIS is not a deposit with, or liability of, and is not guaranteed by NAB or other members of the NAB Group. Opinions constitute our judgement at the time of issue. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the NAB Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.
Source: https://www.mlc.com.au/personal/blog/2020/04/insurance_insidesup