Super-link Insurance Inside and Outside Super

Understanding super-linking insurance is essential for anyone who wants to optimise their coverage and minimise costs and cash flow impacts. By understanding how super-linking works, you can make informed decisions about which policies to link and which insurance provider to choose. Determine the level of coverage you might require and how to get the right coverage through this split ownership set up.

Published November 2, 2023

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Super-linking Insurance

Super-linking allows you to take out a combined policy where you can own part of your policy through your super fund and the other part in your name. This allows you to have, for example, Life Insurance and Any Occupation TPD cover within a super fund and Trauma Insurance linked outside and held in your name.

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 does super-linking work?

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

Pros and cons of super-linking

Benefits of Super LinkingDisadvantages 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 flowAs 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 fundThe personally owned and paid premiums are typically not tax deductible
Provides flexibility on what types of cover (subject to what is allowed) you would like to hold in the different environmentsCover 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

Super-linking your policies is a way to have a combined style policy with part of it funded by your superannuation monies, which can have several benefits. Firstly, it can be a more cost-effective way to obtain insurance as premiums are paid from your super fund  rather than your cash flow. Secondly the portion paid by your super fund is tax deductible to your super fund.

Additionally, by super-linking your policies, you may access additional features and benefits that are not available through standalone policies or your superannuation fund alone. Finally, super-linking can give you greater flexibility to choose what types of cover you want to hold in different environments.

You can generally have Super-link TPD Insurance and trauma cover. The concept of super-linking income protection is where you split the ownership of your policy between self-owned and super-owned.

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:

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 23. As a result of the claim, the remaining trauma cover amount for Policy 23 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 payoutpolicy. Therefore, after the full trauma insurance claim, the remaining cover amounts for the policies would be:

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.

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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 super monies, secondly it can be alot more affordable compared to standalone policies.

However, there are several factors to consider when super-linking insurance, including:

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 are the benefits of super-linking insurance?

    Super-linking insurance can offer several benefits, including improved cash flow as part of your premiums are paid for using your super money. This can be particularly useful if you have limited funds available outside of your superannuation. In addition, super-linking insurance can be more affordable than standalone policies, as you may be able to access group discounts or other benefits. However, it’s important to compare the cost and value of the linked policies with standalone policies to ensure that you are getting the best deal.
  • Can I choose my super-linking insurance provider?

    When it comes to super-linking insurance, you have a wide range of Retail life insurance providers to choose from. You can either fund the super part of the policy via a partial rollover from your existing super fund or paid directly by your SMSF.
  • Is super-linking insurance mandatory?

    Super-linking your insurance is not mandatory, and whether or not it is suitable for your personal circumstances will depend on a range of factors. One of the key benefits of super-linking is cash flow, and being more cost effective compared to stand alone policies.
  • Can I change my super-linking insurance policy?

    Yes, you typically can change your policy like any other life insurance policy (within their normal policy limitations). Secondly you can also change the super fund these policies are funded by giving you a lot of flexibility to keep your cover even if you move super funds.
  • Are there any tax implications associated with super-linking insurance?

    Yes, there are tax implications associated with super-linking insurance. Premiums for super-linking insurance are generally tax-deductible, but benefits paid out may be subject to tax. It is important to seek professional advice before making any decisions about super-linking insurance.

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