Taking out insurance through a super fund can be a great option for some members, but it does also come with some pitfalls.
Most super funds provide their members with insurance options and an option to increase, decrease or cancel default insurance cover. There are many benefits of taking out insurance through super, including the ability to purchase policies in bulk, not having to pay for premiums with your take-home income, and the convenience of having your policy managed for you.
Additionally, life insurance inside super is deductible to the fund at 15 per cent annually; whereas life insurance premiums held outside of super are not tax deductible.
However, there are pitfalls of holding insurance through your super. Generally, there is a limit on the payout that can be received from an insurance policy purchased by a super fund. Some self- managed super funds may not face any limit, this will depend on the policy and insurance company. In public funds, it is usually between $100,000 and $200,000. For some people, this amount may be more than enough. However, if you have dependants and a mortgage, it may be insufficient to look after your loved ones should something happen to you.
Members should be aware life insurance coverage inside super ends when you reach a certain age (usually 65 or 70), whereas policies outside of super may cover you for longer.
Anyone using a super fund to provide insurance should ensure that they have an appropriate death benefit nomination in place that specifies who their super will go to in the event of their death.