Personal insurance: inside or outside your super fund?

Mar 22, 2017

Personal insurance is a smart way to protect your quality of life and provide you and your family with support if you get sick or injured.

When it comes to arranging personal insurance, it's important to decide what type of insurance you'll need for your particular life circumstances and ensure you have sufficient cover. It’s also important to be smart about the structure of your insurance so that the dollars you pay for premiums work harder for you. This includes decisions on whether to hold these inside or outside super.

While all insurances can be held outside superannuation, only three can be held inside super. These include:

  • Income Protection: to provide regular payments to replace your income, should you be unable to continue performing in your occupation, due to illness or injury.
  • Life Insurance: to provide a lump sum payment made to your nominated beneficiaries in the event of your death.
  • Total Permanent Disablement Cover: to provide a lump sum payment in the event that you are no longer able to practise in your speciality due to permanent illness or injury.

Deciding whether to have your insurance within your superannuation or outside can be a complex decision. To help you with your decision-making we have listed the pros and cons of each.

Holding personal insurance inside your super

Only income protection, total and permanent disablement (TPD) and life insurance are available through most super funds. It’s essential to ensure that these types of personal insurance are both sufficient for your needs and cover you for the unique risks your vocation as a doctor presents.

Advantages


  • Life and TPD insurance are generally not tax deductible if held outside of superannuation. Within super these types of cover can be deductible to the super fund and your premiums may be in part or fully paid with pre-tax dollar.
  • Many industry and employer super funds have group insurance policies available which can be cost-effective.
  • It's easy to manage because premiums are automatically deducted from your super balance.
  • Some super funds have automatic acceptance up to certain amounts, with no need for a medical history check.

Disadvantages


  • Reduces your super balance – as premiums are paid from your superannuation savings, your superannuation balance will reduce by the premium paid each year, reducing the money available for your retirement.
  • It’s not always portable – if you have insurance inside your super and change employers, or start your own practice, your cover may not always move with you or remain with the same amount or conditions. If this is the case you could have to apply for new insurance. Applying for new cover means a new insurer may look at your health history and you may not be covered or it may cost you more.
  • Death benefits may be taxed, depending on to whom the benefit is paid.
  • You may pay tax on a TPD claim payment when your insurance is held through your super.
  • Limited cover – the types of insurance, and level of cover, are limited so they may not be tailored to your needs as a doctor.
  • If you cannot work in your specialty as a result of illness or injury, but are able to work in another specialty, you may find that you are not covered.
  • Slower to pay out on claims – there can be delays in receiving benefits for death cover as the insurer pays the benefit to the fund first, who then distributes it to beneficiaries.
  • If you do not make a binding beneficiary nomination or your fund does not offer binding nominations, the super trustee will decide who gets your benefits when you die, although your nomination will be taken into consideration.
  • Life insurance cover through your super ends when you reach a certain age (usually 65 or 70), while policies outside of super may cover you for longer.
  • Trauma and Practice Expense cover is not available through super.

Insuring outside of your super

All personal insurances are available outside super including Income Protection, Life, TPD, Trauma and Practice Expense Cover.

Advantages


  • Portability – you can continue to keep your cover without having to apply for new cover when you change employers or start your own practice. If you are planning to change jobs, take parental leave, start your own practice or considering working overseas, insurance outside your super may be a better option.
  • Income protection is tax deductible.
  • You get relatively immediate access because any benefits are paid directly to the policy owner.
  • Life and TPD insurance benefits are not taxed.
  • You can insure for your area of specialty as a doctor so that you won’t be forced to take on other jobs in the event that you can’t work in your chosen specialty.

Disadvantages


  • Premiums are paid with post-tax dollars for Life & TPD insurance.
  • There may not be automatic cover without the need for medicals.

Here to help

There is no simple answer as to whether you should hold insurance inside or outside of your super. At Avant Mutual Financial Services (AFS)^ we can help you decide the right balance for your circumstances as a doctor. Whether you need help understanding the insurance options available to you, have a question regarding a particular cover or have a complex circumstance that requires professional analysis and detailed personal advice, AFS can help.

For an obligation and cost-free discussion or quote, contact Avant Mutual Financial Services on 1800 128 268 or email: lifeadvice@avant.org.au.

Disclaimer

^ Avant Mutual Financial Services is a registered business name of Doctors Financial Services Pty Ltd ABN 56 610 510 328 (DFS). DFS is an authorised representative of Mercer Financial Advice (Australia) Pty Ltd ABN 76 153 168 293 AFSL 411766. The information provided here is general advice only and has been prepared without taking into account your objectives, financial situation and needs. You should consider these, having regarding to the appropriateness of this advice and the policy wording and/or PDS for the relevant product (which are available by contacting us on 1800 128 268 or lifeadvice@avant.org.au before deciding to purchase or continuing to hold a policy with us.

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