Insurance inside super vs. outside super

Deciding whether to have your insurance within superannuation or outside super can be a complex decision.

All insurances can be done outside your superannuation. Only three insurances can be done inside super – life, TPD “any” occupation, and income protection. TPD “own” occupation and trauma insurance are not permitted within superannuation.

There are pros and cons of personal insurance placed inside, or outside, superannuation.

Insurance within super – pros and cons

  • You pay premiums with pre-tax dollars, so they are cheaper
  • There is automatic acceptance up to certain amounts, with no need for a medical history check. However;
  • You may not be able to access the benefits until retirement (payments are treated as superannuation moneys)
  • Death benefits may be taxed, depending on to whom the benefit is paid
  • There is significant taxation of TPD benefits, particularly for younger people
  • You cannot insure for TPD “own” occupation. (Find out what “own” occupation means)

Insurance outside super

You must pay extra for insurance outside super and there may be extra taxation, however the biggest benefit to having insurance outside super is portability.

If you have insurance inside super and you change employers, you will have to apply for new insurance. A new insurer may look at your health history and you may not get it or it may cost you more. Insurance outside super will mean you can be insured no matter where you work. If you are planning on changing employers, or especially if you are working overseas, insurance outside super may be the better option. In addition:

  • You get relatively immediate access because any benefits are paid directly to the policy owner
  • life and TPD insurance are not taxed
  • you can insure a TPD “own” occupation. (Find out what “own” occupation means)
  • However, you have to pay premiums with post-tax dollars.

We help you decide

There is no magic solution to the amounts of insurance inside and outside super. At Archimedes Financial Planning, we help you decide the right balance for your circumstances.

Do not leave it until something happens - contact us today for a no-obligation review of your personal insurances, and protect those dependent on you!

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