What's the best way to get insurance organised?
Making sure you’re getting the best deal on insurance without missing out on the cover you need can feel like a minefield. Get to know where and how to buy.
The low down on buying insurance
There’s no two ways about it; insurance can be pretty dull. Reading through a product disclosure statement is unlikely to excite you, but taking the time to understand your options can definitely pay off. So keep reading and try not to nod off!
Getting insurance through your super
One way to get insurance is through your super fund. The insurance cover is added to your account and premiums are paid straight from your super balance. Your super fund will usually offer you Total and Permanent Disability (TPD) cover and Life cover (also known as Death cover) as well as Income Protection, that could cover you, if you are temporary disabled through illness or injury. Sometimes your fund may even add them automatically, which could mean you may have insurance cover without even knowing it. Income protection for loss of income is usually an optional add on.
Find out more about the different types of cover available
Like with most of your money choices, there are pros and cons of going through your super fund for insurance.
The pros:
It’s easy and convenient
Your super fund will usually have a single policy they have negotiated for all their members. You’re already a member of the super fund so it’s a pretty painless process to get cover under that ‘group’ policy. Some funds may also offer a range of other insurers for you to choose from.
2. No impact on your take-home pay
Your insurance premiums are paid directly from your super balance so you won’t even notice that you’re spending the money. You won’t need to put your hand in your pocket each month.
3. Cheaper premiums
Most super funds buy a group policy for thousands of members, which means they’ve got bargaining power. This can sometimes give you access to cheaper insurance premiums by going through your super fund.
4. Potential for tax savings
Your employer's super contributions and any salary sacrifice contributions you make are taxed at the concessional rate of 15%, which could be less than your marginal tax rate. This can make paying for insurance through your super fund more tax-effective should you choose to do so.
The Cons:
1. Your retirement savings take a hit
While paying your insurance premiums from your super balance means you’re not out of pocket for them each month, your super balance – and your savings for retirement – are taking the hit. It’s a double whammy – you lose out on savings with each payment, plus the compound interest you could have earned on those savings. Over your lifetime, that could really add up.
2. It’s generic insurance cover
The default cover through your super fund is providing you with basic cover and the amount is usually based on your age. That may not be enough for your circumstances and needs. And the cover is usually limited. If you want something more tailored or a higher level of cover you might want to apply for additional cover. You also won’t be able to get critical illness (trauma) cover through your super fund so you’ll need to go outside of super if you want it.
3. If you overlook notices from your super fund your cover could end accidentally
Imagine falling seriously ill, only to find out that you missed the reminders about your inactive account and your insurance was cancelled because your super account was deemed ‘inactive’. It seems far fetched, but it does happen. We cover this very important topic in more detail below.
A caution about insurance through super
It’s pretty likely that you have more than one super account. It’s so common in fact, that there have been campaigns by the ATO to find your lost super. The most important thing to know about insurance within super, is that your cover can stop if your account becomes inactive.
Let’s say you change super funds and stop contributing to your old account. Super funds are required by law to cancel all insurance on accounts that haven’t received a contribution or rollover within 16 months. It helps save your inactive account from dwindling away through insurance fees, but it means you could be under insured if you don’t stay on top of things. The good news is that you can fill out a single form to tell your fund not to cancel your cover – but you must do this before reaching 16 months.
Your insurance options outside of super
Of course you don’t have to go through your super fund for insurance. You’ve got two other options:
Going direct with an insurance company – if you’re feeling adventurous and willing to do some legwork, you can go directly to insurance companies – or insurance comparison websites – and shop around for alternatives. Be warned, insurance policies are complex and varied. To properly compare products, you’ll need to be prepared to invest some time to really understand what’s included in each one.
Get help from a financial adviser – if you’re keen to make sure you have the right cover and analytics isn’t your strong point, you can get help from a financial adviser to find a good match for your situation. This will certainly save you time, but comes at a price. The fee you’ll pay the financial adviser might be an up-front fee, or they may charge you commission which will bump up the cost of your insurance policy. Any adviser will tell you what these costs are before you sign up.
Source: IOOF