Most people insure their personal assets, such as their house, contents and car, but when it comes to personal insurance, many overlook
the importance of protecting their wealth because personal insurance is often seen as unnecessary, a luxury and an additional cost to pay
Unfortunately, we don’t know what’s around the corner but having the right level of protection in place will assist you and your family through sickness and injury and protect you and your family’s lifestyle when times get tough.
Depending on your needs, insurance can be structured either inside or outside superannuation, with most superannuation funds offering insurance for their members.
Superannuation funds generally offer three types of life insurance for their members, including life insurance, total and permanent disablement (TPD) insurance and income protection insurance. This article briefly summarises these insurances and covers some common benefits and considerations when owning insurance in superannuation.
Life insurance, also known as death cover, is a lump sum amount paid to your beneficiaries on top of the balance that’s already in your superannuation account if you pass away. It may also be paid if you have a terminal illness.
Total and permanent disablement (or TPD) cover pays you a benefit if you become seriously disabled or are too sick to ever work again. In addition to meeting the insurance policy definition of incapacity, you must also meet the permanent incapacity condition of release definition under superannuation law before the trustee can pay the TPD benefit to you.
Superannuation law defines permanent incapacity to mean:
“ill health (whether physical or mental), where the trustee is reasonably satisfied that the member is unlikely, because of the ill heath, to engage in gainful employment for which the member is reasonably qualified by education, training or experience”.
To be ‘reasonably satisfied’, a superannuation fund trustee will usually request medical evidence in the form of two doctors’ certificates to that effect. This is to also satisfy the requirement for the payment of a disability superannuation benefit.
It is also worth noting that the superannuation law definition of permanent incapacity is generally referred to as an ‘any occupation’ definition of permanent incapacity because it relates to gainful employment ‘for which the member is reasonably qualified by education, training or experience’.
Income protection (also called salary continuance insurance) helps replace your income if you can’t work due to a temporary disability or illness. If your claim is approved, your superannuation fund will pay you a regular income as a percentage of your salary for aspecified period of time (ie, the benefit period could befor 2 years, 5 years or up to a certain age, such as age 65).
WHAT ABOUT TRAUMA COVER?
Trauma cover (also known as critical illness cover) pays you a lump sum amount if you are diagnosed with a critical illness or injury as specified in the policy, such as cancer, stroke, coronary bypass or heart attack. However due to changes in the law that came into effect on 1 July 2014, it is no longer possible to take out trauma insurance through your superannuation fund.
FACTORS TO CONSIDER
The key benefits of insurance inside superannuation include: