Income Protection Through Superannuation

The majority of Australians who work for an employer in Australia have some level of life insurance or income protection through their superannuation fund.

Super funds typically provide up to three different types of insurance for members:

• Life insurance. Pays a lump sum benefit to your beneficiaries in the event of your death.
• Total and permanent disability (TPD) cover. Pays a lump sum benefit if you become permanently disabled and are unable to ever return to work.
• Income protection (IP) cover. Pays a monthly benefit for a specified period of time if you're unable to work due to a temporary disability or illness.

While most employer super funds offer a basic level of cover, the benefit amounts will vary and are usually limited. For example, the default cover in your super may only provide $100,000 for life insurance, when many families today need up to $1 million or more to protect their lifestyle.

Choosing your own life insurance and IP policy

When it comes to income protection through superannuation, remember that you are in control of your policy.

Because everyone’s circumstances and requirements are different, it’s important to make sure you understand the level of cover your super fund provides. If you find your default cover isn't adequate, you have the option to take out your own policy to cover the extra amount of cover you may need relative to your situation.

Choosing your own cover through your super offers:

• Greater control. Rather than having a default level of cover, you can choose a policy that suits your specific requirements.
• No impact on cash flow. The policy is still funded through your super, therefore there is no impact on your day-to-day cash flow.

Remember that the cost of insurance premiums is deducted from your super balance, therefore reducing the amount of money available for your retirement. You may also have to pay tax on certain insurance benefits at claim time. Always consult with your financial adviser or tax adviser for guidance on your particular situation.