Insurance through Super

Did you know many of the insurers we compare allow you to take out a life insurance policy through your superannuation fund or self managed super fund (SMSF)?

By taking out cover through your fund, your premiums are paid for by your super fund, freeing up cash flow and potentially making cover more affordable.

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Types of Super Funds

What insurance is available through super?

Life Insurance

TPD Insurance

Income Protection

*Please note from 1 July 2014 Own Occupation TPD is no longer available through superannuation.

How does life insurance through superannuation work?

Life Insurance through superannuation works in much the same way as a policy held outside of super with a few subtle differences:

When you take out a life insurance policy through a super fund, the super fund becomes the policy owner and any benefit paid out is paid out to the super fund, not to you personally.

In order for you or your beneficiaries to access your life insurance benefit, you will generally need to meet a ‘condition of release’ as defined under the Superannuation Industry Supervision Act (SIS).

Generally death or terminal illness will allow the funds to be released to you however this may be at the discretion of your insurer and the super fund.

Premiums are funded by your super fund which means you need to make sure you have the necessary funds available in your fund to pay for the premiums.

This can be done with either a partial or full rollover from an existing super fund.

Like a normal life insurance policy, you can nominate beneficiaries to receive your life insurance benefit.

There are two types of nominations options:

  • Binding nomination – trustee of the fund must pay your benefit to the beneficiaries you have nominated, including any specified proportions.
  • Non-binding nomination – does not have to confirm or updated by you every three years. The trustee must pay the benefit to your beneficiaries you have nominatedPlease note that a non-binding nomination can not over rule a binding nomination and a binding nomination will have to be revoked before non-binding nomination will be accepted.

Types of Super Funds

If you are a member of a SMSF, the trustee of that fund can purchase the policy on your behalf and it will be issued in your name, with the trustee of the fund as the policy owner.

Any benefit that is paid out will be paid to the trustee and the trustee of your SMSF can only pay you or your beneficiaries the benefit if it is allowed to according to the deed of the trust and relevant superannuation law.

If you do not have a SMSF, you can generally set up a fund through your life insurer. This fund will in most cases not be a non investment product and contributions made to the fund will match your premium amount.

Alternatively, if you already have a retail super fund established, you can elect to set up your insurance policy through your current fund.

If you have an industry super fund such as REST, Hesta or CBUS, you can generally elect to Rollover funds from your existing complying industry super fund to pay for your life insurance premiums.

Essentially, money from your super fund will be transferred or rolled over from your existing fund to pay your premiums.

Flexible Policy Options
A number of options are available to you to help make your policy more flexible:

If you take out insurance through your super fund, you can still elect to have a ‘combined’ or linked policy where your covers are all combined into the one policy. However please note that Own Occupation TPD and critical illness are not able to be taken out through your super fund.

To combat the inability of certain covers to be taken out through super, insurers have introduced ‘Flexible Policy Linking’, which allows you to split your policy ownership between superannuation ad individual ownership.

What are the tax incentives of life insurance through super?

Premiums paid for by your superannuation may be fully tax deductible to your fund. Generally, life insurance premiums will be fully tax deductible; however TPD premiums may only be partially tax deductible depending on the definition of TPD chosen.

Terminal Illness Benefit

Most life insurers offer a terminal illness benefit which provides you with your lump sum life insurance benefit upon diagnosis of a terminal illness.

If you have your life insurance policy within super and you receive this benefit, it will generally be able to be released from your super fund, tax free and regardless of your age, to your beneficiaries upon diagnosis.

TPD Insurance through Superannuation

It is generally possible to take out TPD Insurance through superannuation; however there are a number of things you need to be aware of, especially when it comes to Own Occupation TPD.

Trauma Insurance through Superannuation

From July 1 2014, Trauma or critical illness insurance is no longer available to be taken out through your super fund as it is not possible to access the benefit if a claim was made.

Income Protection through Superannuation

Most life insurance companies we work with allow your income protection policies to be taken out through your super fund as salary continuance.

However you need to be aware of condition of release issues surrounding your monthly benefit.

Advantages of Life Insurance through superannuation

  • Premiums can be funded by your super fund which may help with your cash flow making cover more affordable.
  • Tax deductible premiums for Life Insurance and TPD Insurance
  • Easy to manage as premiums are automatically deducted from the fund
  • Premiums are paid annually, allowing you to get an additional discount of 5% – 8%.
  • Death benefits paid out to financial depends are tax free

Disadvantages of Life Insurance through superannuation

  • Erosion of your super fund balance as funds are being used to pay for your life insurance premiums
  • Funds may be difficult to access as you need to meet a ‘condition of release’, particularly for TPD benefits.
  • Difficulty in taking out a number of policies including Own Occupation TPD Insurance and trauma insurance.
  • Certain built-in features may not be available through super
Published: June 17, 2015
  • TPD vs Income Protection

    TPD or Income Protection which is best or should I have both? Everything you need to know to protect your income and your family’s financial future.

  • Own Occupation

    Own Occupation Total and Permanent Disablement cover provides protection if you can no longer work in your Own Occupation.

  • Are TPD Insurance Premiums Tax Deductible?

    Yes, TPD insurance premiums are tax deductible when an any occupation total and permanent disablement insurance policy is owned by your super fund.

  • TPD vs Trauma Insurance

    Are you not sure what the difference is between TPD and Trauma Insurance? Our comprehensive comparison guide takes you though the two cover types!

  • Lump Sum Payment

    Include the lump sum benefit option and be eligible to receive a non tax assessable lump sum benefit, adding greater flexibility to your income protection policy at claim time.

  • TPD Insurance in Superannuation

    Advantages of TPD in your superannuation (SMSF), with tax deductible premiums and flexible combined policies.

Ask an Expert?

4 Comments

  • Bec Mathew |

    Hi team,

    I have a general query in regards to insurance through superannuation.
    As far as I am aware, companies such as yours don’t issue certificates of currency for income protection insurance.
    Therefore, as an employer my understanding is to check if this insurance is still valid we will need to get third party authority to see if your client is still with you and therefore holds valid insurance.
    If this is the case, will we have access to this documents via an email request?

    Thanks

    • SPECIALIST
      Brett Lenertz |

      Thanks for your enquiry, Bec. Yes, we don’t specifically issue certificates of currency as we are the intermediary, however we obtain them on behalf of our customers(policy holder) from the relevant insurer.

      Therefore in order for us to send this to you, you will be required to be ‘authorised’ on that person’s policy to be able to receive that information on email. The policy holder would have to notify us that they give us permission to provide that document to you when required ie .. when the policy is paid each year.

  • Michael |

    I am looking for Life Insurance for members of my SMSF. Do you have any options for me?

    • SPECIALIST
      Brett Lenertz |

      Certainly Michael, we are the experts when it comes to setting up Life Insurance within an SMSF. Importantly, Trustees of SMSF’s have to at least consider insurance for one or more members of the fund but of course there is no legal requirement that you must. You are able to hold TPD (Any Occupation) and Income Protection within the SMSF also. We have some more information here that will also assist regarding SMSF Insurance. You are welcome to call us on 1300 135 205 and one of our Life Insurance Specialists can assist you.

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