Insurance inside super vs. outside super

Are you aware of the pros and cons
of insurance outside super?

It is possible to have three personal insurances within superannuation - life, TPD “any” occupation, income protection (usually up to 2-year benefits, some funds insure up to age 65).

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
  • pay premiums with pre-tax dollars
  • automatic acceptance up to certain amounts
• cons
  • potential lack of access to the benefits (payments are treated as superannuation moneys)
  • potential taxation of death benefits, depending on to whom the benefit is paid
  • significant taxation of TPD benefits, particularly for younger people
  • cannot insure for TPD “own” occupation.

If insurance is placed outside super, then get relatively immediate access because any benefits are paid directly to the policy owner; life and TPD insurance are not taxed; can insure TPD “own” occupation. However, have to pay premiums with post-tax dollars.

Another factor in having insurance outside super is portability when change employers, particularly if moving overseas.

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