What your adviser wishes you knew about life insurance

These days, it’s become common for people to share information with their friends that they think is helpful, but is actually inaccurate. For example, do you know at what age your life insurance in super really ends? Or what trauma insurance really does? 

Below, we set the record straight with some important facts about life insurance that you should know:

I already have life insurance through my superannuation. Can I have multiple policies?

Yes, it is possible to have both life insurance through a superannuation fund and an external life insurance policy. In fact, you might want to have more than one policy, depending on your personal situation.

Is life insurance through super adequate, or should I get an additional policy?

It depends on your personal needs. Life insurance through super often may not be personalised enough to cover your expenses, such as paying off mortgages or car loans, providing for family members, or other financial priorities.

If you have a change in employers or super funds, you could see your premiums increase, or your coverage may not carry over and you could lose insurance. 

Additionally, life insurance through super usually ends between the ages of 65 to 75. If you would prefer more tailored or extended coverage, an external policy will be able to offer more benefits. These are all factors to take into account when deciding on a life insurance policy. 

What are the benefits to life insurance through super?

Life insurance through super may be the right choice for you if you are looking for less coverage at a more affordable price. It can feel more manageable on your cash flow, as premiums are automatically withdrawn from super and not your bank account. 

Also, most super funds generally do not require a health check for the standard level of coverage.

What are the drawbacks to life insurance through super?

Paying for life insurance through super will ultimately lead to less money in your savings account come retirement, since it pulls from your fund. 

The coverage provided may also be limited, and therefore not be enough for all your needs (such as bill payments and dependent care). It also does not include trauma insurance. 

When it comes to payout, there is less control over beneficiaries, since the trustee of the super fund generally has final say over payment and a chosen beneficiary is not guaranteed to be the recipient. Payouts can also be delayed as benefit payment goes to your super fund first. 

Finally, life insurance through super is only valid until around 65-70, while standalone policies will often cover you far longer into your golden years.

Is there an age limit to when my life insurance through super ends?

Depending on the provider, life insurance policies through super funds typically end between the ages of 65 to 70. 

When is life insurance tax deductible?

Tax deductions vary by policy and state tax laws. Premiums on income protection are generally tax deductible, but other insurance (term life, TPD, trauma) are not. 

If you are self-employed and have life insurance through super, insurance premium payments are tax deductible. Premiums on life insurance through a provider are generally not tax deductible. 

Because of these variables, it is best to check with your insurance company and/or state taxation office.

What is the difference between life insurance and trauma insurance?

Life insurance provides for your beneficiaries after death, while trauma insurance takes care of you should a critical illness make it impossible for you to work while living. 

Trauma insurance is a set payment amount that can be used as an income stream towards medical treatment, housing costs, and any other personal bills. 

Remember, life insurance through super does not include trauma insurance.

What should I factor into my life insurance priorities?

When looking at life insurance coverage, you should consider your: age, health, income level, number of dependents, and any other financial commitments. If something were to happen to you, how much would your beneficiaries need to support family members or pay off outstanding debts (like a house, car, education)? 

If the amount is more than what your life insurance through super provides, it may be worth looking into an external policy. Our advisers can help you find one that suits your cover requirements and budget.

It is also advised to assess these factors regularly for any significant changes (for example, paying off a loan or when adult children no longer are financial dependents), and adjust your insurance accordingly. 

Does life insurance include funeral costs?

When considering life insurance coverage, funeral costs may be factored in to ease the financial burden on dependents. 

Many insurance policies will pay out a final expenses benefit, or a small immediate sum to cover funeral expenses. This amount is deducted from the total of the insurance policy to be paid to the beneficiaries. 

If you do not have a separate funeral insurance plan, it is worth factoring these costs into your life insurance planning.

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