Flexi-Link Insurance Inside and Outside Super

If you’re looking for a way to reduce your insurance premiums while still benefiting from comprehensive coverage, then you might want to consider flexible policy linking.

With Flexi-linking, you can optimise who pays for your insurance and the benefits you can access by having your policies split between the superannuation and non-superannuation environments.

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What is Flexi-linking?

Flexi-linking, also known as superlinking, provides you with the flexibility of how you structure your insurance. It allows you to connect two or more life insurance policies across different environments – inside and outside super. For example, you might want to link your personally owned trauma insurance policy (outside super) with the life cover you have inside your super fund.

Superlinking your insurance might help you take advantage of lower premium rates while providing features that aren’t available from policies held inside superannuation.

How does superlinking work?

With Flexi-linking, you split the ownership of your policies between the superannuation and non-superannuation environments. This makes it possible for you to, for example, link Own occupation TPD, held outside of super, with a death benefit and Any occupation TPD held inside your super fund.

Insurance inside super

When you purchase life insurance through your superannuation, the fund becomes the policy owner, and you need to meet several conditions of release before you can access an insurance payout. However, your premiums get paid through your fund, which might help you save money. On the other hand, Agreed value income protection, Own occupation TPD and trauma insurance are generally not available through super.

Insurance outside super

If you purchase life insurance outside the superannuation environment, you are the policy owner and pay the premiums from your own pocket. However, you’ll have access to features not available through super. A policy outside of super also generally has a more straightforward claim process.

Link cover inside and outside superannuation

Benefits of Flexi-linking your life insurance

  • Cheaper than standalone cover: Generally, Own occupation TPD and trauma insurance premiums are cheaper when Flexi linked as opposed to purchasing them as standalone policies.
  • Cost savings: Premiums are paid from your super fund.
  • Tax deductions: Premiums paid for income protection held outside of superannuation is generally tax-deductible.
  • Improve timing of claim payments: For example, if your TPD and trauma policy are outside super, it can be paid to you directly, without having to satisfy a superannuation condition of release.
  • Gain access to more features: Flexi-linking your policy allows you to benefit from additional features generally not available through your super fund.
  • Different payment frequencies: When superlinking your insurance policies, you might have the option of choosing different premium frequencies to help you manage your cash flow. For example, you might want to have the premiums deducted from super be once a month and pay annually for insurance held outside of super.
  • Choose your premium type: With retail policies, you have the ability to choose between stepped and level premiums. Group policies inside super, generally only offer stepped premiums.

Possible disadvantages

  • Decrease total life insurance benefit: When a benefit gets paid for linked cover, all policies to which it is Flexi linked will usually be reduced by the amount of the benefit that has been paid.
  • Payouts within super might be taxable when paid to non-financial dependent beneficiaries, for example, an adult child, thus reducing the benefit you receive.
  • Reducing your retirement savings: Premiums paid from your super fund could erode your retirement savings.
  • Longer claims process: When the insurance company has approved a claim, the part of the benefit inside super will be paid to the trustee of your super fund. Before a benefit gets paid to you, the trustee must ensure your claim meets several conditions of release according to the Superannuation Industry Supervision (SIS) law.

Which life insurance policy types can you superlink?

You can generally have Flexi-link TPD and Flexi-link trauma plans, as well as superlinked income protection insurance.

Split ownership structure for TPD

How does a split ownership structure affect your claim?

Should you claim under a superlinked policy, the insurance held inside super usually gets assessed first. For example, in the event of a TPD claim, the Any occupation TPD policy held inside superannuation is first evaluated. If you qualify for a TPD benefit under the super fund policy, the benefit is payable to the trustee of your fund.

However, if the trustee determines that your claim does not meet the conditions of release under the SIS law, your claim then gets assessed under the non-super policy based on an Own occupation TPD definition. If your claim gets approved, the lump sum amount is paid directly to you. The TPD cover under the super policy will then reduce to zero.

To determine whether Flexi-linking is a good option for you carefully consider the variables, like cost, taxation, the features included in the plan and where your benefit will be paid when you make a claim.

Contact an insurance broker to help you decide based on your specific requirements.

Published: September 16, 2019
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