Insurances and Super – What you need to know which could result in a superior retirement nest egg!!
Firstly, I do not want to bag industry funds, they serve a purpose and can fit into a clients wealth creation strategy. However, when it comes to insurances within superannuation there is a distinct difference that you may not be aware of!
Insurance in super or not?
One of the concerns of having insurances paid via super is the depletion on your balances and the effect that has over time. Just like the advertising comment : “a 2% saving can have a dramatic effect on your retirement nest egg”.
Having insurance paid from personal cash flows will not deplete your balances, however in many situations, clients cash flows do not allow the luxury of this payment method. Insurances outside superannuation have less hurdles to cross, with respect to red tape, when having to go through the trustees of that superannuation fund.
So in respect to having insurances funded by your industry superannuation you need to know some details that could save you a fortune over time and increase your superannuation balance!
Case one – Default Cover
This is the amount that is provided to you automatically based on your age and occupation. Usually very limited health disclosure required. This is the most complained type of insurance when a claim is made due to ‘non disclosure’ regarding health issues.
Case two – Increased Cover
This is where a life-stage event has necessitated an increase in insured amounts, usually via increased debt or having children etc. When taking out increased cover within an industry fund, the costs can be astronomical. We have witnessed cases where the cover is sometimes twice or three times as much when compared to a retail fund. Premiums can still be met via the industry fund via rollover. The irony is that the insurer in the industry fund has retail divisions and the retail product is far superior. Also, at claim time more members received benefits as they have sought professional advice that meets their specific needs.
We have saved clients $1000’s by utilising retail versus industry fund insurances. Can you imagine the effect on your superannuation balance and eventual retirement income, just by saving on insurance costs? Far greater than the 2% I might add!
Phil Nolis CPA Dip FS (FP)