Understanding the Pros and Cons Of Income Protection Australian Super
Income protection Australian super insurance covers up to 75 percent of your salary for a given period if you are temporarily hindered from working as a result of sickness or injury. In Australia, this type of coverage can be obtained directly through a retail policy or through your super. Australian super funds have long provided minimum life insurance to their members, but many are now providing other types of insurance, including income protection. Most people obtain their income insurance protection via superannuation because it is more affordable. However, it is important to understand all the pros and cons of each option before you buy your policy.
One of the advantages of obtaining income protection insurance through your super is that the premiums are generally cheaper since you are accessing wholesale rates. Super funds have the ability to negotiate for favorable terms because the policies are bought in bulk. In addition, group policies usually involve automatic acceptance up to a certain level of cover. You also enjoy greater cash flow since your premiums are covered by the funds in super. However, note that the premium payments eat into your retirement savings. As such, while you may not be paying for premiums from your pocket, you would be paying for it out of your retirement funds.
When purchasing a retail individual income protection policy, a medical check may be part of the underwriting process. This would mean that you could receive higher rates if you have pre-existing medical conditions or if your medical family history is less than perfect. No medical checks are required when getting income protection cover in superannuation. In addition, old age, certain occupations and lifestyle choices (such as smoking), may be penalized in retail policies. In superannuation income protection, smokers and non-smokers get the same rates and age and occupation are not determining factors when setting your premium rates.
When it comes to policy options, obtaining your income protection via superannuation means that you have fewer options in comparison to getting a retail policy. For instance, the benefit period in most cases for policies obtained through superannuation is limited to 2 years, while that for retail policies can go up to retirement age. In order to receive your benefits for a policy obtained through superannuation, you not only have to satisfy the benefit conditions provided by the insurance provider, but also satisfy a condition of release provided in the super.
In addition, you cannot get an agreed value income protection insurance policy through superannuation. You can only get an indemnity value policy, which in most cases means that your benefit amount will be calculated based on the highest average monthly income earned over the last 12 months preceding your claim. This means that if you take leave without pay or move into a different role that provides a short-term pay cut, you will only be able to claim on this amount. Read: How to get a cheap blood work without insurance
Visit us before purchasing income protection insurance in superannuation, it is important to consider all the pros and cons. You should also consult with your financial planner so you can make the right choice and obtain sufficient coverage from the right Australian insurance provider for your particular circumstances.