If you’re a member of a super fund, it’s more than likely you have insurance through your super. The cost of this insurance is deducted from your super account balance – so you’re effectively paying for it – unless your employer is covering the cost on your behalf. To help you, we’ve identified some key things to ask yourself when it comes to your insurance inside super.
1. Is insurance inside super something you need?
Deciding whether you need to have insurance, is something that only you can answer as it really comes down to your own personal circumstances. We’ve listed some scenarios below to help you with this.
Scenario 1 — dependants
If you have people depending on you financially, and you died unexpectedly, could your dependants continue to live the same lifestyle without you? Would you and your family be able to meet your mortgage repayments, and what if you’re self-employed? How about if you were ill, or injured, and as a result unable to work for a period of time, or permanently? In these cases, having Death only, or Death and Total & Permanent Disability insurance, could help to provide financial security.
Scenario 2 — no dependants
If you don’t have anyone financially depending on you, but you were unable to work for an extended period of time due to an illness, would you be able to cover your expenses without an income? If not, perhaps Income Protection insurance is something to consider.
2. Which types of insurance inside super are most appropriate for you?
There are three main types of insurance cover available through your super.
Death insurance cover
This type of cover is designed to provide your family, or any nominated beneficiaries, with a sum of money if you were to die. It may also come with Terminal Illness cover which provides financial support if you are diagnosed with a terminal illness.
Total and Permanent Disability (TPD) cover
If you were unable to work ever again in an occupation that you are suited to, because of a disability, this type of cover pays you a lump sum which could help to pay for things like your living expenses or repay any debt you may have, such as your mortgage.
Income Protection (IP) cover
If you’re injured or suffer an illness, or have a disability and are unable to work for a temporary period of time, this cover would provide you with a short-term income stream to help you pay for things like living expenses or cover debts.
So, what is income protection?
Income protection insurance is designed to provide an income stream if you can’t work due to certain reasons, like injury or illness.
Generally, income protection insurance will replace part of your income (up to 75%) if you’re unable to work due to injury or sickness and can’t work. However, this is usually subject to certain monetary caps. To receive benefit payments, insurers will typically require you to be totally or partially disabled or have a specific injury or sickness that renders you unable to work.
Key features of income protection
This type of insurance is designed to step in and replace your income should you become sick or injured. You can just set up your monthly payment and have peace of mind knowing you’re covered if something happens.
You should look at income protection insurance as a financial safety net – it pays you a percentage of your wage, for a set period if you’re unable to work due to a sudden illness or injury. So, if you had a serious car accident, and couldn’t work for six months, you’d get regular payments from your insurer – meaning you could focus on getting better without falling behind on bills.
For a monthly payment – usually around 1-2% of your salary – income protection insurance gives you peace of mind if you become too sick or injured to work.
3. How much insurance inside super do you need?
Insurance calculators such as that available on the Moneysmart website are a good starting point to work how much insurance you may need, depending on your personal circumstances. You may also want to consider speaking with a financial adviser as they’ll be able to assess your situation and advise which types of policies could work best for you.
Some things you may want to consider include:
The amount you’d need to cover your current lifestyle if you were unable to work for an extended period or permanently.
Whether you or your family could rely on other financial resources if you were unable to work or died.
Any debts you have such as a mortgage.
Bottom line: when deciding if having insurance inside super is beneficial, it really comes down to being clear about your own circumstances and what’s best for you. A financial adviser may be able to help in making this decision.
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National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. MLC Limited uses the MLC brand under licence. MLC Limited is a part of the Nippon Life Insurance Group and not part of the NAB Group of Companies. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
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