Many superannuation plans include insurance as part of their offer. It’s often seen as an added benefit that can help in times of need. Insurance paid through super is a tax-effective way to protect you and your family should anything happen to you.
You may have decided to take out insurance cover after a conversation with your adviser, or you may have acquired insurance cover as part of a previous employer plan, and when you left that employment you retained your insurance cover.
The different types of insurance
Life insurance
Sometimes called death cover, life insurance works by providing a lump-sum payment to your super account if you pass-away or become terminally ill.
It can be used to help support your loved ones financially, with costs like a mortgage, or other debts as well as your family’s future expenses to help maintain their lifestyle when they need it most. So, it’s important to consider who your super benefits will go to if you pass-away.
Total and permanent disablement (TPD)
TPD cover provides you with a lump-sum payment if you suffer a disability that prevents you from ever working again.
This cover could help you pay for ongoing medical expenses, alterations to your home to make day-to-day life easier and help provide future financial stability.
TPD is generally only available if you also take life insurance and normally, the amount of your life insurance cover will be reduced by the amount of any TPD claim that is paid.
Trauma
Trauma insurance pays an agreed lump sum if you suffer a serious illness or injury that is covered in the plan you take out. Some example of trauma events can be if you get cancer, suffer a stroke or a heart attack. The lump-sum payment can help you make the adjustments to your lifestyle that you may want or need after suffering a traumatic event.
Trauma insurance is non-super only and can not be set up in your as part of your superannuation.
Income Protection
Your ability to earn an income is likely to be one of your most valuable assets in life.
Income protection, is designed to pay a monthly benefit of up to 75% of your pre-disability regular income if you’re unable to work due to injury or illness.
Typically, within super, income protection provides you with cover either for a two-year or five-year period or until you turn 65, depending on the terms in your employer plan.
Type | Provides | Ownership | Tax |
Life | A lump sum benefit if you pass away | Super or non-super | 15% if held within super |
TPD | A lump sum benefit if you are totally and permanently disabled | Super or non-super | 15% if held within super |
Trauma | A lump sum if you suffer a ‘trauma’ event – e.g.: cancer, stroke, heart attack | Non-super only | None |
Income Protection | An income stream if you are unable to work due to illness or injury | Super or non-super | 15% if held within super or at your marginal tax rate if outside super |