Should I own Income Protection insurance inside superannuation?

Whether you should own Income Protection insurance inside your superannuation (super) depends on various factors including your personal circumstances, financial situation, and objectives. Here are some points to consider:

1. Cost-effectiveness: Income Protection insurance inside super can sometimes be more cost-effective compared to purchasing it outside super. This is because super funds often purchase insurance policies in bulk, potentially resulting in lower premiums.
2. Cash flow considerations: Paying premiums from your super balance means you’re not using your disposable income to cover the cost, which can be advantageous, especially if you have limited cash flow.
3. Tax implications: Premiums paid for Income Protection insurance inside super are generally tax-deductible to the fund, which can provide tax benefits. However, benefits received are generally taxed as income when paid.
4. Level of cover: Assess whether the level of cover provided by the insurance inside super meets your needs. Sometimes, default insurance cover within super may not be sufficient for your specific circumstances, so you may need to consider additional cover.
5. Flexibility and portability: Insurance within super may lack flexibility compared to standalone policies. For example, you may have limited control over the terms and conditions of the policy, and it may not be portable if you change jobs or super funds.
6. Impact on super balance: Paying insurance premiums from your super balance can reduce the amount available for retirement savings, potentially affecting your retirement income.
7. Employer contributions: Consider whether your employer contributes additional funds to your super to cover insurance premiums. If not, paying insurance premiums from your super balance may reduce your retirement savings without any offsetting benefit.
8. Health and occupation: Some insurance policies inside super may have limitations or exclusions based on your health or occupation. Ensure you understand these limitations and whether they align with your needs.
9. Review and adjust: Regularly review your insurance needs and the terms of your policy to ensure they remain suitable as your circumstances change.

Before making a decision, it’s advisable to seek advice from Sterling Grange Financial Planning as we are qualified Financial Planners with expertise in personal life insurance. We will assess your individual situation and provide personalised recommendations based on your goals and needs.

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