TPD Insurance Within Super – What You Should Know
Deciding whether to have your TPD insurance within super or outside super can be complex, especially if you do not understand the implications. When a TPD insurance policy is held via superannuation, the super fund essentially owns the policy.
This means that the insurance contract is held between the super and the insurer. As such, when a claim is made, the benefits are paid out to the trustee of the super fund before they are distributed to the insured member.
One of the reasons why holding it may work in your favor is because the premiums are generally paid from accumulated super balances. This means that you get to enjoy TPD protection while preserving your disposable income. However, when the premiums are paid from accumulated balances in the super, your retirement benefits reduce in case a TPD claim is made. Fortunately, you also have the option of making contributions to fund your insurance premiums through salary sacrificing.
When you choose to make contributions to your super through salary sacrificing, you forego a portion of your salary. Your employer then makes a contribution into your TPD insurance premium. The main advantage of doing this is that you would actually be making a tax-free payment, making your premiums cheaper. In addition, you can get automatic acceptance up to certain amounts and a medical history check is not required in most cases. This is especially beneficial for older members who would have to pay higher premiums for TPD insurance cover held outside super.
When you hold your insurance, an insurance contract exists between the insurer and the super. This means that you do not own the policy and any benefits are paid out to the trustee of the super, who then directs them to you. However, you are required to meet certain qualifications before you can receive your benefits, and this can get complicated if your policy has a TPD definition apart from the any occupation definition. If this is the case, you may not gain access to your benefits until your retire or attain preservation age, learn more here.
If you require an own occupation TPD insurance policy, you should consider holding it outside super so you can get immediate access to your benefits. Another drawback of holding it, is that if you change employers, you may have to apply for new insurance. If you are older or your health status has changed since the last time you applied for insurance, you may not get favorable terms from your new insurer, who may demand higher premiums for your policy. Read: 4 Amazing Tips To Consider While Applying For Short Term Business Loans
You should also take into consideration the tax treatment of it before you decide to take out a policy. Generally, the premium payments for TPD insurance in super are tax deductible while those for policies outside super are not. On the other hand, the benefits for TPD insurance in super are taxed while those for policies outside super are tax-free. Seeking professional advice from your financial planner is important before deciding how to take out your TPD insurance policy.