Income protection insurance via super?

[Oynas]

My financial adviser is recommending to me that I ramp up my income protection insurance in my super fund.

As superannuation is compulsory for everyone and I am sure that many people here have super funds that have income protection insurance inbuilt into it, I am wondering what level of cover Somersoft forum members have. I am really confused about what level of insurance I should get, but I am thinking of just doing what other people here do.

My adviser told me that my super fund already has TPD insurance that pays out over $400,000 lump sum if I am totally permanently disabled. My adviser wants me to ramp up my income protection insurance so that, if I am temporarily injured or sick, the insurance will pay me an income for longer than 2 years. However, if some injury or illness lasts longer than 2 years, it would probably be likely to be a total permanent disability and TPD insurance would cover it, I think?

I currently pay $14 per year for income protection insurance that will pay me $3000 per month for two years if I am temporarily injured or sick.

However, my financial adviser recommended that I ramp up my insurance and instead pay $108 per year (seven times more) to get insurance that will pay me $3500 per month until I am 60 (about 30 years). Although this insurance starts off at $108 per year now that I am in my late 20s, by the time I am 50 years of age this insurance will be as high as $400 per month, so it is expensive (although it does come straight out of my super fund)!

I understand insurance is a personal thing, so I don't expect anyone to answer this dilemma for me, but I would like to ask you what you have done for your super fund? Do you have income protection insurance and why?

 

[wylie]

Hubby has income protection insurance outside of his super. I did check out whether we could get it as part of his super, but (from memory) it was a bit of a grey area, and we didn't wan to risk finding he didn't fit their idea of "disabled".

I also know a lady who has been on claim and has not been able to work in her industry (insurance - she sold herself the Rolls Royce of policies) for 15 years. Two of her friends also had the same illness, but they didn't have good policies. One was forced to take a menial job whereas my friend's policy ensured that she would not be forced into "any" job that she was capable of doing, but will be paid until she can return to the type of work she was doing when she went on claim, which will be never.

The insurer makes her jump through hoops, but she has been paid for 15 years so far and will continue to be paid until she turns 60 or 65 (cannot recall).

Another of her friends had a policy that ran out after two years, and she was no better in that time. Luckily, she has a partner or goodness knows how she would have coped after the money ran out.

You really need to check it out carefully.

Your figures seem extraordinarily cheap, even considering your age. Are you sure it is only $14 per year???

Hubby has just turned 52 and we pay about $1,300 or so per annum for 75% of his income at the time he took it out, adjusted each year for inflation. He was earning more than he was when he took the policy, but we are happy with the coverage and check it each year before paying to ensure it is adequate.

 

[buzzlightyear]

I set up a SMSF so don't have these group / employer super income protection options available. I have income protection insurance that has a 60 day waiting period, to cover 75% of agreed value (or income today) until the age of 65. I also have TPD and Life insurance with these, all out of super. It costs me ~$5k pa, for memory of which income protection insurance is about half of that.

I had to have blood tests, make a declaration about my health, family history etc. These are all in my name not through super.

A few key things to bear in mind about income protection insurance to decide;

* waiting periods - How long before insurance companies start to pay benefits after accepting your claim. These can vary between 14 to 730 days.
* benefit periods - ie 2 years from initial claim or through to 65 or even 70 years of age
* agreed vale v indemnity contracts - AV is an agreed anmount the insurere pays based on demonstrated tax returns for the past 2 years. This is a good option if you believe your income will vary significantly or if you want to start up a business in the future. IC - is usually 75% of your income in the 12 months before the start of the waiting period. The IC option is also approximately 15-20% cheaper.

Income protection insurance is also generally tax deductible too

 

[devank]

Income protection insurance is also generally tax deductible too

For that sake alone I'm planning to move my Income protection insurance from super to another soon.

I'm planning to leave everything else with the super as I won't see that money for next 20 years.

 

[BV]

Do you have income protection insurance and why?

I do for 90% of my income payable for 5 years (with Tower) but not through my super because income protection is fully tax deductible so the tax benefit is greater outside super.

The other disadvantage of having it through super is the added layer of complexity in the event you have to make a claim. You not only need to satisfy the insurer to receive a payout, you also need to satisfy the trustee of the super fund.

You do not actually receive the benefit yourself it goes via the super and you have to meet a condition of release.

Life insurance is different.
I chose to have life insurance through super because it isn't tax deductible outside super
and it can also be paid from my super fund's income.

 

[redwing]

I'm currently looking at a new income insurance policy and a range of premiums as attached, based on Zurich Life’s Income Protection Plan 'Comprehensive'.

The previous one was with Tower Life

Remember that if taken outside super you would receive a 30% tax deduction for the cost of this insurance and inside super 15%. So the cost would be reduced by any deduction you receive.

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