Do you need risk insurance?
Many people make the mistake of thinking superannuation is simply about saving significant amounts of money year after year with the vague hope that when they reach retirement, there will be enough money there to see them through financially.
While many people don’t want to think about taking out personal risk insurance, superannuation can provide a very cost-effective way of taking out life insurance as well as total and permanent disability insurance.
Many people are confused by what is meant by risk insurance and so a good starting place might be to simply explain what the key types of risk insurance are and where superannuation can help you pay for them.
Life insurance is just as the name suggests, insurance that you take out over your own life. This is a relatively simple form of insurance where you agree to pay an annual premium and the insurance company agrees to pay out a lump sum should you die.
Typically, this type of insurance will only cover you until age 65 and is best held within superannuation, as the premiums can be claimed as a tax deduction to offset other taxes paid within your superannuation account.
This type of insurance is a must for anyone with a young family or other dependents or large debts such as a home loan as life insurance can be set up so that if you die the funds paid out under the policy are sufficient to cover any outstanding debts you might have.
Total and permanent disability insurance is slightly more complex as you need to understand exactly what you are covered for in terms of the disabilities you might sustain and how much money will be paid out under the policy fi you do.
Again, the premiums are a tax deduction within your super account and while the funds are paid directly to your super fund, it is relatively easy to get these funds released to you under the compassionate early release provisions of your super fund.
Another form of risk insurance is income protection. This insurance covers you under certain circumstances if you are unable to work for a protracted period of time. It can be quite expensive costing several thousand dollars a year.
While some super funds do offer income protection, this type of insurance is best held outside super as then there is no question as to you accessing any insurance payouts made under the insurance policy. The premiums paid can also be claimed to reduce your overall personal tax bill.
There are also a raft of other types of risk insurance from trauma insurance to key-man insurance but for most people, the three key types of insurance to focus on are life, total and permanent disability and income protection.
Needless to say, as you move through life, your need for risk insurance tends to diminish as you reduce your debts and as your children grow older and become more independent. However, just when your need for risk insurance extinguishes completely is a vexed question for anyone.
IF you are unsure of your current cover or need for risk insurance, it is best to obtain professional advice from adviser such as myself. It can be a relatively small cost within your super fund but it can have a big impact if something does happy to you.