Income Protection inside superannuation

[Sheryn]

Started reading our adult childrens' superannuation benefits over the last 2 weeks as daughter was coming to visit, son and daughter aren't overly interested in reading and understanding super and the benefits and I must admit at their age I didn't understand super and when I asked my Mum she didn't understand either.

Anyway daughter does have adequate IP Income Protection, Death and TPD Total Permanent Disability Cover via her 2 super funds at the current time.


[Financial Planners may say to combine the 2 supers to save admin costs but the older super fund has performed extremely well and the newer super fund I am not so sure of yet].


The point of this thread is that when I read our son's super benefits he did not have IP although he could apply for IP inside super and have a cover of 85% of his wages after waiting 60 days and cover would allow up to maximum of 2 years IP.

Emailed son for him to persue IP inside OR outside of super, his reply was short and sweet. "not really interested in IP".

50 cents a week.
Upon further reading I found that he would pay a fee of .24 cents for each $500 of wages cover per week, so if he paid .48 cents per week he was covered for $1000 per week in wages although he would only be paid 85% of his wage say $850 per week for 22 months.


About this time the saying - You can lead a horse to water but you can't make it drink came to mind.

Email was fired off to son during the week but he has been too busy to talk. This is the same son who's Christmas present last year from us was travel insurance not because he couldn't afford to pay his own travel insurance he just couldn't see the risk or need for travel insurance.

Upon reading more about our son's super I found out son could increase his Death and TPD by 100% of current cover if he filled out a form to say he was a white collar worker and did less than 10% light manual work, which he does.

May pay to read up on your own super online or your kids super if they will let you.


Kind Regards
Sheryn

BTW
A retired friend rang to tell us he was sent a flyer with his super to say he could get a 12% discount if he used HCF as a health fund. So he rang up and saved himself $38 per month that is an extra coffee out for he and his wife every week.

Comparing health funds is my next project.

 

[DaveM]

There are certain insurances which are beneficial to be held in/paid by superannuation. However there are others which should not be inside your super as in the event of them being paid, the superannuation account adn not the person is the beneficiary and the money may not be accessible until far down the track.

I dont have my details on me, but I have IP, TPD, trauma and life insurances, some is paid from my SMSF, the rest is paid from me personally.

I am sure a financial planner like PT Bear etc can clarify whats best to be held where.

Also be aware that many cheap TPD and IP plans are not worth the paper they are written on and exclude so many things its almost worthless.

 

[Peter_Tersteeg]

A couple of comments on income protection...

The main problem with income protection inside super (which Sheryn has mentioned), is that it's only paid for 2 years. If you're not back to work within that time it ceases and could leave you with a problem.

You may also want to consider what type of IP you're being offered. Is the amount adjusted to take into account future (higher) income?

Another great consideration for someone young is to look at level premiums instead of variable. Variable premiums start lower, but they go up with age. By the time the person insured is 50+ the premiums are so high that most people can no longer afford it so they ditch the cover - and people in this age group are more likely than younger people to have health problems which prevent them from working.

Level premiums cost more at first, but don't increase with age. From about year 8-10 they tend to be far more cost effective.

Finally, income protection insurance premiums are generally tax dedutcable - if taken directly and not inside super.

I'd generally put IP outside of super, but things like life inside super.

 

[china]

Income protection inside super is usually grossly inadequate. The criteria for paying out is also usually very strict. Lets say that you are a surgeon and have broken your arm and cannot work for three months as a surgeon. IP inside super may refuse to pay you because you can still work as a toll booth collector. Generally, as a self employed person, I think purchasing IP outside super is much safer. It is also best to purchase IP via a good broker such as a financial planner who works within a major bank. Whilst it is easy to pay the insurance company, it is very difficult to get money out. When it comes to claim time, you hope that the broker will help you out. Do not purchase insurance through individual brokers as they may not be there when you need them.

 

[Peter_Tersteeg]

China I would argue the opposite. If you go through a planner that works within a bank or other financial institution, then you're hardly going to get independent and impartial advice. When looking around for a head group when I was doing planning, the financial groups made it very clear that they anticipated the lions share of business would be written through them.

Your argument that an independent planner may not be around in the future is not very solid. When they retire or leave the business, planners go one of two ways. The first is they simply don't take new clients and continue to do a little bit of work here and there to continue to service existing clients. The second is they sell their book to another planner or group, who then continues to service those clients.

Either way, if you've got an insurance policy and the premiums are paid, that insurance company is obligated to pay a legitimate claim.

 

[china]

China I would argue the opposite. If you go through a planner that works within a bank or other financial institution, then you're hardly going to get independent and impartial advice. When looking around for a head group when I was doing planning, the financial groups made it very clear that they anticipated the lions share of business would be written through them.

Your argument that an independent planner may not be around in the future is not very solid. When they retire or leave the business, planners go one of two ways. The first is they simply don't take new clients and continue to do a little bit of work here and there to continue to service existing clients. The second is they sell their book to another planner or group, who then continues to service those clients.

Either way, if you've got an insurance policy and the premiums are paid, that insurance company is obligated to pay a legitimate claim.

Dealing with insurance companies is really painful. A good broker should help you obtain your rightful claim from the insurance company. One needs to shop around for the best deal. I recommend that people talk to representatives from the various banks who inevitably will recommend various affiliated products. However, large banks also have significant purchasing power which can potentially translate to better deals with the insurance company. If you are not happy with the particular at the bank, you always have recourse to complain to other echelons of the bank whereas, with independent planners, you are more or less on your own if you are unhappy. Furthermore, with the bank, one may often have other business with it and therefore hold greater leverage.

 

[Rolf Latham]

Do not purchase insurance through individual brokers as they may not be there when you need them.

interesting view

But structurally flawed

A planner is not involved in the life /IP claims process no more than a new car sales person is for a warranty claim on the vehicle.

ta
rolf

 

[redwing]

I had thought the Income Protection if taken outside super would receive (example) 30% tax deduction for the cost of this insurance and inside super 15%; So the policy cost would be reduced by any deduction you receive either inside or outside of Super?

We have IP inside a SMSF and looked at Zurich, Comminsure & Macquarie

You can further reduce the cost by increasing the waiting period to 90 days but this would put your finances under additional pleasure if you had no income for three months.

You can also drop the cover from comprehensive to standard to reduce costs

Current Comprehensive Policy within SMSF is around $2k per annum or $190 p/mth, 30 day wait, benefit paid to 65 years, increasing claim, Day 4 Accident

We have Term Life with another Super Policy which at one stage would pay out the loans and only keep that one going as the deal could never be replicated