Hi
I am bit confused . Is it cost effective to pay for trauma tpd and income protection through super or outside of super.
I have been to zillion advisors and everybody is telling the truth only from their perspective … And am so confused… Tips appreciated
I haven't looked into it myself but I've heard that the policies can also be quite different in terms of when you can claim between within super and outside super policies.
Trauma can't be structured inside a super fund as it does not meet the SIS Act conditions of release. TPD and IP can be structured inside a super fund. They can be cost effective because you are not paying them through your cashflow but from your pre tax dollar (super employer contribution). What you need to check is the difference in definition between covers inside and outside of super.
If you pay IP from your cashflow then you can claim the premium you are paying as a tax deduction. If you are structuring IP and TPD inside super, technically your fund can then claim a tax deduction but not all fund will pass on this benefit to their members. Most industry funds will keep the tax deduction themselves.
If you have TPD within your super fund there is a small risk that you may qualify for a TPD payout but not satisfy a condition of release on your superannuation, so the funds could get 'stuck', or delayed whilst you argue the toss with the trustees, inside your super fund.
There is nothing stopping you from doing a combination of insurances inside and outside of super.
This is all stuff you need set up carefully and professionally - no point in paying all those premiums if you aren't going to be covered when you need it.
TPD within super is usually under the definition of ANY occupation, meaning you must be disabled to the pt where you can't perform any duties. You can get OWN occupation outside of super, but it comes at a cost
Typically people take their death and tpd cover through super and their IP and trauma personally. Most super funds offer IP, however, it is inferior to buying a personal IP policy. A personal IP policy may allow an "agreed value" for your pre-disability income but super IP will be "indemnity value". You can also get "level premiums" instead of "stepped premiums" which can save a small fortune over the policies lifetime and also ensure you can still afford the premiums in your fifties and sixties when you are most likely to claim. Also, some default super IP policies only pay out for 2 years when they should really run to age 65. Personal IP policies have additional "bells and whistles" which aren't allowed in super IP policies.
Your super automatically covers you for one unit of life and tpd. Financial advisers recommend life insurance and TPD within super, IP personal. Instead of taking another life insurance outside super, it is more cost effective to increase your life insurance within super. You also don't need to worry about paying premiums yourself as they are deducted automatically from your super.
The only disadvantage I see is that the life and tpd benefit within super decreases every year while you have the option of indexation of 5% increase in benefit payout if you have a personal insurance.
TPD outside of super is not tax deductible, whilst those maintained through your super fund are. IP either through your super or outside are both tax deductible.
The main advantage is that your super is done via pretax income.
What you need to do it compare the premiums that your super fund is offering against other companies (taking into account potential tax implications). If there is a large enough gap, then there may be potential savings to be made. Many superfunds are competative in regards to these kinds of insurance.