Life Insurance Super Fund: What You Need to Know

Life insurance is often overlooked in superannuation, but it's an essential component of a comprehensive financial plan.

Superannuation funds offer life insurance as a default option to members, which can provide a tax-free death benefit to dependents.

A life insurance super fund can provide a lump sum payment to beneficiaries in the event of the member's death.

The amount of life insurance cover provided through a super fund can vary, with some funds offering up to five times the member's annual salary.

A life insurance super fund is a type of superannuation fund that offers life insurance policies to its members.

These funds are designed to provide a safety net for members and their loved ones in the event of a serious illness or death.

They often include features like automatic acceptance of life insurance policies, meaning you don't need to undergo medical checks to be covered.

A Life Insurance Super Fund is a type of superannuation fund that invests in life insurance products.

It's designed to provide a tax-effective way to fund life insurance premiums, typically for business owners or high-income earners.

Life Insurance Super Funds are often used to reduce taxable income by offsetting life insurance premiums against tax liabilities.

They can provide a lump sum benefit to beneficiaries in the event of the policyholder's death or total permanent disability.

The funds are usually invested in a range of assets, including shares, property, and cash, to generate returns and offset the cost of life insurance premiums.

By investing in a Life Insurance Super Fund, individuals can potentially reduce their tax burden and provide a financial safety net for their loved ones.

Life insurance super fund, or LISF, is a type of superannuation fund that combines life insurance with superannuation benefits.

A LISF can provide a lump sum payment to your beneficiaries if you pass away, in addition to your superannuation benefits.

The benefits of a LISF can be paid out as a lump sum, which can be used for any purpose, or as an income stream, such as an annuity.

You can choose to take out a life insurance policy through your super fund, which can provide a tax-effective way to cover the cost of premiums.

The premiums for a life insurance policy through a LISF are usually tax-deductible, which can help reduce your taxable income.

Insurance premiums are the amount you pay for the level of cover you have.

The cost of death cover inside super varies based on factors like the amount of cover you want and your personal situation.

Most super funds offer basic default insurance to members when they join the fund, which can be a real benefit for older members or people with existing medical conditions.

The premiums for default insurance vary and depend on your risk factors, such as your smoking status, weight, and family medical history.

In a super fund, the insurance risk of all the fund members is pooled, making cover more accessible for many members who would not otherwise be able to afford insurance protection.

If you work in hazardous and blue-collar occupations, you may face higher premiums, with annual premiums 20-40% more expensive for 'light blue-collar' employees and potentially twice as expensive for those in 'heavy blue-collar' jobs compared to office workers.

The cost of insurance premiums can be a bit confusing, but let's break it down. Insurance premiums are the amount you pay for the level of cover you have. The cost of death cover inside super varies based on a variety of factors, including the amount of cover you want, your personal situation, and how your super fund calculates its premiums.

Your premiums will depend on your risk factors, such as your smoking status, weight, family medical history, and even your hobbies. Insurers assess and price a range of risk factors to work out how much they would need to pay out if you made a claim against your insurance policy.

If you work in a hazardous or blue-collar occupation, you can expect to pay more for your insurance premium. For example, if you're a 'light blue-collar' employee, your annual premium could be 20-40% more expensive than if you worked in an office job.

Most super funds deduct your insurance premiums from your account monthly, making it easy to manage your costs. In fact, your premium is usually cheaper when you buy insurance through your super fund, as the fund negotiates directly with life insurers.

About two thirds of super funds provide online calculators to help you assess your insurance needs.

You can also get advice services through your fund, which can cover insurance. Contact your fund to see how they can help you ensure your level of cover suits your lifestyle.

Recent legislation has reduced the number of members who are insured, leading to premium increases.

Income protection insurance has seen significant increases due to a smaller pool of members.

Mental health claims are rising, impacting premiums for income protection insurance more than death and TPD insurance.

Funds anticipate a rise in mental health-related claims due to the pandemic environment.

Contact your super fund for advice on their cover and other options available to members.

You can ask your super fund for information about their cover, review what happens to your insurance cover if you change your super fund, and consider making an appointment with an independent financial adviser.

You can also purchase additional protection outside of super if you need more insurance cover.

Here are some steps to consider when seeking advice from your super fund:

To determine how much life insurance you need, consider your financial responsibilities, such as debts, living costs, and regular expenses.

Your financial situation is unique, and your insurance needs will depend on factors like your income level, health, and number of dependents. A healthy single person may need less cover than someone with a partner and young family.

You should calculate how much your dependents will need to pay off your debts and continue their current lifestyle if you pass away. This includes expenses like mortgage repayments, credit card debts, car repayments, and utility bills.

Debts to consider include mortgages, investment properties, credit cards, car loans, and personal loans. Living costs include food, clothing, travel, and holidays. Regular expenses include household bills, medical insurance, and school fees.

Funeral expenses and the cost of maintaining your home, such as gardening and cleaning, should also be factored into your calculations.

If you're young and have less debt, you may need less cover. However, if you're older and have a family and a mortgage, you'll likely need more cover to ensure you can maintain these payments.

Here are some key expenses to consider when calculating your life insurance needs:

Remember, your insurance needs will change over time, so it's essential to review and update your cover regularly.

Types of life insurance available through a super fund are quite straightforward. There are three main types: income protection, total and permanent disability (TPD) insurance, and life insurance.

Income protection provides a portion of your income, typically around 75%, to cover you if you're unable to work due to temporary disability or illness. This can be a huge safety net for your family's financial responsibilities.

Income protection is also known as salary continuance or temporary disability insurance. It's designed to provide a regular income if you're unable to work for a period, so your family can maintain their current lifestyle.

There are three main types of life insurance super fund, and here they are in a quick rundown:

Types of life insurance offered by super funds are designed to provide financial protection in various situations.

Income Protection insurance provides an income stream for a specified period if you can't work due to temporary disability or illness. This can be a lifesaver for families who rely on your income.

Total and Permanent Disability (TPD) Insurance pays a lump sum benefit if you become seriously disabled and are unable to work again. This benefit can be used to cover ongoing expenses or pay off debts.

Life Insurance, also known as death cover, pays a lump sum benefit to your super fund if you become terminally ill or pass away. This can provide financial security for your loved ones.

Here are the three main types of insurance offered by superannuation funds:

Income Protection insurance typically pays around 75% of your income, which can help cover financial responsibilities like mortgages or other debts.

Direct life insurance is a great option for those who want to tailor their insurance coverage to their specific needs. You can choose from a variety of insurance products, including death cover, TPD, critical illness, and income protection insurance.

By setting up a combination of these policies, you can ensure that your loved ones are financially secure in the event of your passing. This is especially important if you have specific circumstances that require customized coverage.

A key benefit of direct life insurance is that you can pay premiums in a way that suits your budget and lifestyle. You can also decide how long your cover will last, giving you more control over your insurance arrangements.

If you're considering direct life insurance, it's essential to check the Product Disclosure Statement (PDS) before making a decision. This document will provide you with all the information you need to know about the policy, including its features, benefits, and costs.

Here are some key questions to ask yourself when considering direct life insurance:

Life insurance through a super fund can be a convenient and cost-effective option. You can enjoy possible tax benefits, such as tax concessions and tax-efficient premiums.

However, it's essential to consider the potential downsides. Premiums can erode your super savings, and you may not have access to comprehensive cover options like trauma insurance or 'own occupation' Total and Permanent Disability (TPD) cover.

Here are some key advantages and disadvantages to consider:

Purchasing life insurance through your super can be a smart move, offering several benefits.

You may be able to take advantage of tax benefits, depending on your individual circumstances.

Having your life insurance premiums paid directly from your super fund can help preserve your disposable income, without affecting your day-to-day cash flow.

If eligible, you can claim a tax deduction on certain super contributions to fund insurance premiums.

Generally, insurance purchased through super is cheaper due to volume discounts, but the level of cover may be lower than a separate policy.

You may be able to increase your level of cover by contacting your super fund.

Here are some potential advantages of life insurance through super at a glance:

Buying insurance through superannuation may seem like a great idea, but it's not without its downsides. One major limitation is that the type and level of cover can be restricted, so it's essential to assess your options carefully with your financial adviser.

You'll need to keep track of your insurances through super, and if you have multiple funds, you might end up paying for duplicate policies. This can be a hassle to manage, and it's easy to overlook.

Not all benefits are tax-free, which may come as a surprise. For example, if your beneficiary isn't a dependant, there could be tax implications.

Some benefits are paid to a trustee, who will then distribute them to you or your beneficiaries. This can be a bit of a bureaucratic process.

Paying premiums from your super contributions might affect your retirement balance in the long run. This is something to consider when weighing the pros and cons.

If you don't make a binding beneficiary nomination, or your fund doesn't offer this option, the super trustee will decide who receives your benefits when you pass away. This can be a bit unsettling, especially if you have specific wishes for your loved ones.

Purchasing life insurance through your super fund can be a convenient and cost-effective option, but it's essential to weigh the pros and cons before making a decision.

One potential advantage of buying insurance through super is that it can be a tax-efficient option, depending on your circumstances. This is because premiums are paid from pre-tax income.

Another benefit is that premiums are paid directly from the balance of your super fund, which can help preserve your disposable income. This can be a relief if you're on a tight budget.

However, it's crucial to keep track of your insurance through super, especially if you have multiple super funds. This can be time-consuming, but it's worth it to ensure you're not paying for duplicate policies.

Additionally, benefits paid through super may not be entirely tax-free. For example, if your beneficiary is not a dependent, there may be tax implications.

On the other hand, purchasing insurance through super can provide discounted premiums, making it a more affordable option. Premiums are also paid from your super account, which can be helpful if you're struggling with cash flow.

Here are some key points to consider:

It's also worth noting that the Protecting Your Super/Putting Members' Interests First legislation has introduced reforms that aim to protect super accounts from unnecessary insurance premiums.