Superlinking Life Insurance Inside and Outside Super
Our Insurance Partners
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What Is Super-Linking (Flexi-Linking) and How Does It Work?
Super-linking, sometimes referred to as flexi-linking, is a way of structuring your life insurance so that a single, integrated policy is split across both your superannuation fund and your personal ownership. Under this arrangement, the components of cover that are legally permitted to be held inside super, such as Life Insurance and Any-Occupation TPD, are owned by your super fund, while benefits that superannuation law does not allow, including Trauma insurance and Own-Occupation TPD, are held in your own name outside super. Although ownership is divided, the policies remain linked and operate as one coordinated structure, which means you can still access combined premium discounts, consistent policy features and greater flexibility in how claims are paid. This linked approach allows you to use super to help fund eligible premiums without giving up access to the broader protection and faster claim access that personally-owned cover can provide.
Inside Super
When you purchase insurance through your superannuation, the fund becomes the policy owner. You need to meet both the SIS conditions of release and policy definitions before accessing an insurance payout. Own occupation TPD and Trauma Insurance are not available through super. However, it’s important to note that your retirement funds will decrease if you pay for your insurance through your super.
Outside Super
If you purchase insurance outside the superannuation environment, you are typically the policy owner and pay the premiums from your own pocket. Policies outside of super generally have a more straightforward claim process.
How a super-linked structure is set up
A typical setup may look like this:
| Cover Type | Owned Inside Super | Owned Personally | Eligible for Super? |
|---|---|---|---|
| Life Insurance | ✔ Yes | Optional | ✔ Allowed |
| TPD – Any Occupation | ✔ Yes | Optional | ✔ Allowed |
| TPD – Own Occupation | ✘ No | ✔ Yes | ✘ Not allowed |
| Trauma / Critical Illness | ✘ No | ✔ Yes | ✘ Not allowed |
| Income Protection | ✔ Basic income replacement | ✔ Extras | ✔ With restrictions |
Pros and cons of super-linking insurance
| Benefits of Super Linking | Disadvantages of Super Linking |
|---|---|
| Allows you to retain combined premium pricing (as opposed to standalone pricing). | Whilst they are cheaper, super-linked (combined) policies provide less overall cover than standalone policies. |
| Part of the premiums are funded by your super fund, helping your cash flow. | As part of your premiums are funded by your super fund, you are eroding your super and potential retirement funds. |
| The super owned, and funded premiums are tax deductible to your super fund. | The personally owned and paid premiums are typically not tax deductible unless it is income protection. |
| Provides flexibility on what types of cover (subject to what is allowed) you would like to hold in the different environments. | Cover types held and funded by your super fund need to meet both the policy terms and conditions and SIS conditions of release before you can access the funds. |
Why You Shouldn’t Hold Everything Inside Super
Super fund rules restrict what cover can be paid out, and under what conditions. Super-owned insurance must satisfy two hurdles:
- Your claim must meet the insurer’s definition, and
- The trustee must approve release under SIS conditions of release.
If both criteria aren’t met, your claim may be:
- Delayed
- Locked inside super
- Paid only when the conditions of release are eventually met
- Partially taxed depending on dependants and age
How Claims Work With Super-Linked Policies
When you make a claim on a super-linked policy, the portion of the cover held inside your super fund is usually assessed first. This is because the super fund is the legal owner of that part of the policy and must determine whether the claim meets both the insurer’s policy definition and the superannuation conditions of release. If the claim does not meet those release conditions, the super fund may not be able to pay the benefit at that time.
Any part of the claim that cannot be paid through super is then generally assessed under the policy held outside super. Personally owned insurance does not have the same release restrictions, which means benefits can often be paid directly to you once the insurer accepts the claim. As a result, if your super fund is unable to release the benefit, the linked cover held outside super may still pay, which is one of the key advantages of using a super-linked structure. Example of the impact of a full trauma insurance claim in a super-linked policy.
The insured individual has three types of cover across 2 policies to provide financial protection in the event of death, total and permanent disability (TPD), or trauma. The policy details are as follows:
- Policy 1: $1,000,000 of Super-Owned Life Insurance
- Policy 2: $600,000 of Self-Owned TPD Insurance (Own Occupation)
- Policy 2: $200,000 of Self-Owned Trauma Insurance
Assuming the insured individual suffers from a trauma event and makes a full trauma insurance claim, the payout amount would be $200,000, which is the cover provided by Policy 2. As a result of the claim, the remaining trauma cover amount for Policy 2 would be reduced to $0. The remaining cover amounts for Policies 1 and 2 would be reduced by the amount paid out by the full trauma insurance payout. Therefore, after the full trauma insurance claim, the remaining cover amounts for the policies would be:
- Policy 1: $800,000 of Super-Owned Life Insurance
- Policy 2: $400,000 of Self-Owned TPD Insurance (Own Occupation)
- Policy 2: $0 of Self-Owned Trauma Insurance
It’s important to note that the insured individual would still be covered for TPD and life insurance events if they meet the policy’s terms and conditions.
Factors to consider when super-linking insurance
Super-linking refers to linking the personally owned Trauma, or TPD Cover to a primary benefit policy eg: life cover policy owned by a super fund. This can provide a range of benefits, such as helping with your cash flow as part of your premiums are paid for by your superannuation. Secondly, it can be a lot more affordable compared to standalone policies.
However, there are several factors to consider when super-linking insurance, including:
- Premiums: When considering super-linking insurance, it’s important to compare the premiums of the linked policies with standalone policies.
- Erosion of your super balance: While you get the benefit of paying the super owned portion of your policy using your super monies. While it helps with immediate cash flow it is important to understand it is eroding your super balance, and therefore you should consider either looking at ways to top up your super fund, and or consider paying for all the cover personally.
- Tax implications: The portions of cover held within super may have tax implications, particularly if you make a claim on the policy. Depending on the circumstances, you may be required to pay tax on any insurance payout received from your superannuation fund.
Overall, it’s important to carefully consider the benefits and drawbacks of super-linking insurance before making a decision. It may be beneficial for some individuals, but not for others, depending on their personal requirements.
Frequently Asked Questions and Answers
What is super-linking and how does it work?
Super-linking is a way of structuring one overall life insurance arrangement so that part of the cover is owned by your superannuation fund and the remainder is held in your own name. Cover that is permitted under superannuation law, such as Life Insurance and Any Occupation TPD, is held inside super, while benefits that cannot be owned by a super fund, including Trauma insurance and Own Occupation TPD, are held personally outside super. Although ownership is split, the policies remain linked and operate together, allowing you to keep combined premium pricing and coordinated benefits. This structure provides greater flexibility than holding all cover in one place while helping manage overall costs.Can income protection be held inside super?
Yes, income protection can be held inside super, but it works differently to income protection held in your own name. When held through super, premiums are paid from your super balance and any claim is first paid to the super fund trustee, who must confirm the benefit meets superannuation rules for temporary incapacity before it can be released to you. These rules can limit how benefits are paid and may not apply in cases of partial incapacity, and payments from super are usually taxed before you receive them. Income protection held outside super is generally more flexible at claim time, which is why many people choose a super-linked structure that uses super for affordability while keeping personal cover for easier access.Why can’t Trauma insurance or Own Occupation TPD be held inside super?
Trauma insurance and Own Occupation TPD are not permitted to be held in super because they do not always align with super’s legal purpose, which is to provide benefits for retirement, death, or specific types of permanent incapacity. Trauma insurance can pay a benefit even if you are able to return to work, and Own Occupation TPD can pay out even if you could still work in another occupation. Because of this, superannuation law does not allow these benefits to be owned by a super fund. Super-linking allows these covers to be held personally while still linking them to super-owned benefits for pricing and structural efficiency.Does super-linking change how claims are paid?
Yes, super-linking can change both how and when claims are paid, depending on where the benefit is held. Claims on benefits owned personally, such as Trauma insurance or Own Occupation TPD, are generally paid directly to you once the insurer accepts the claim. Claims on benefits held inside super must also meet the superannuation conditions of release before the money can be paid, which can involve additional steps and sometimes delays. In a super-linked structure, this means some benefits may be accessed more quickly than others, which is often an important consideration when choosing how to structure your cover.Is super-linking right for everyone?
Super-linking can be a suitable option for many people, but it is not the best choice in every situation. It is often most useful for people who want comprehensive cover but need to manage cash flow, or who want access to benefits such as Trauma insurance and Own Occupation TPD that cannot be held inside super alone. However, paying premiums from super can reduce your retirement savings over time, and linked policies can be more complex than holding a single standalone policy. The most appropriate structure depends on your personal circumstances, including your income, super balance and long-term financial goals, which is why it is important to compare options carefully before making a decision.
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With flexi-link, do I need to obtain prior approval from my super trustees first before getting an external policy ? Or is it a matter of independent ownership choice without requiring notification with my super fund where i have basic life and TPD coverage ?
Can I take out a loan against my insurance policy (equity ) and do they pay equity against a loan?
Hi Kegan.
Term life insurance policies in Australia do not have a cash component, so you can’t take a loan against it.