TPD Insurance Outside Super – When Is It Appropriate?
Total and permanent disability insurance protects you against the inability to earn a living as a result of injury or illness.
When taking out your TPD insurance policy, you can choose between purchasing your TPD insurance outside super and getting it within super.
Each option has its pros and cons and these must be well understood in order to make an informed decision. Generally, taking out your TPD insurance in super has the advantage of being more affordable, and the premiums are tax deductible.
However, there are certain cases in which TPD insurance would be more appropriate.
Own occupation policy
If you want an own occupation TPD insurance policy as opposed to any occupation, it is generally advisable to have your insurance outside super for one main reason. Even if you make a successful TPD insurance claim within super, you may not receive your benefits until you retire or reach preservation age. The super trustee can only release the benefits to you immediately if you satisfy the permanent incapacity definition provided under super, which is more or less the same as the any occupation TPD definition.
One advantage of holding TPD insurance in super is that you get automatic acceptance for certain amounts and you do not need to undergo a medical check. This is advantageous for older super member and those with pre-existing health conditions that would typically lead to higher premium payments for policies held outside super. On the other hand, younger, healthy members would not really require such benefits, which would mean they would essentially be paying for benefits that others would enjoy because of the group nature of super funds.
The benefits paid out for TPD insurance held outside super are not taxed – you get the full value of your coverage. In addition, when you make a TPD claim, the amount of time it takes before you get your benefits is significant because of the initial impact your disability would have on your finances. Holding TPD insurance outside super can be beneficial in this respect because it is probably the only want to get immediate access to your benefits. First, the benefits are rewarded directly to you in contrast to having them paid to the trustee of your super fund. In addition, only your insurer would need to approve the release of the benefits.
When you have insurance outside super, you do not need to apply for new insurance in case you change employers. In the case of TPD insurance policies held within super, you would need to apply for new insurance, which may mean getting terms that are less favorable than your previous insurance coverage since you would be older. In addition, your health status may have changed, which may also mean costly premiums on your new insurance. When you have TPD insurance, your policy is applicable for the long haul.
When purchasing your TPD insurance policy, it is important to go with the option that is most appropriate for your situation more information here. Your financial planner can help you fully understand your options so you can make the best decision.