Paying for life insurance via super can often be an effective way to maximise cashflow and minimise tax. However life insurance in super is typically provided inhouse by the super fund, or by their designated contractor, on terms that are not always market leading. But now it’s possible to go elsewhere for a better insurance option and still pay premiums from your existing super fund.
This provides great potential for lowering the cost of insurances paid from your super.
Many people choose their super fund based on advertised administration fees or performance history. Very few people look at the cost or conditions associated with a super fund’s insurance. The tradeoff with low cost super admin fees can often be expensive insurance, or insurance that is very restrictive on your ability to claim.
In some cases the insurance in a super fund may be slanted towards a particular demographic of members (eg blue collar industrial) and provide relatively poor rates and conditions for others (eg white collar professionals).
In some cases companies who are good at super, are just not as good at insurance. They struggle to provide high quality or cost effective insurance even though they do admirably well on the super side of their business.
All of these situations tend to result in consumers being denied the best possible deal on their insurance inside super.
But now consumers have more choice.
Since the introduction of SuperStream (technology that streamlines the links between super funds) many specialist insurance companies have the ability to automatically transfer money from your existing super fund to pay for life insurance premiums. It’s a very simple process and works a bit like a direct debit authority.
This means you can choose a lower cost insurance product from a range of high quality insurance companies, and pay for it from your super without having to change super fund.
Please note that this only applies to new insurances set up in a superannuation based structure, with insurance companies who have implemented the necessary systems. It is not generally possible to pay for existing insurances held outside your super using money from your super fund.
Also note that some people may lose benefits if they change their insurance away from their existing super fund (eg. if your employer pays the insurance premiums on your behalf) so always investigate any potential lost benefits before making a change. And if you are replacing existing insurances with something better, never cancel your existing insurance until the replacement is fully implemented.
If you would like some help obtaining lower cost insurances that you can pay from your existing super fund, please send us a message.