Superannuation is a retirement scheme where employers are mandated by law to pay a certain amount, usually proportionate to their employees’ salary and around 9%, to a super fund.

Income protection, on the other hand, is an insurance policy which pays a monthly benefit to an employee who is unable to work due to illness or injury.

Superannuation has provided automatic life insurance to its members, but not income protection. Recent developments have shown that superannuation companies have declared to automatically include income protection in their package. They call this type of income protection under superannuation, salary continuance.

The debate has since been going on whether it is wise to get income protection under your superannuation, or it is still better to get different kinds of insurance for your various needs. Most people are still wary of getting income protection through their super funds, because the maximum time it would pay the benefits is up to 2 years.

Under this premise, a worst case scenario would be someone who has to stop working at 37 because of an illness or injury. If you got your income protection through your superannuation and receive 2 years of paid benefits, you will have exhausted it at 39. This is fine, unless you are unable to work anymore – 39 is a long way to your retirement age of 65. A person cannot live up to that time without any assistance. On the other hand, getting your income protection through superannuation is not as bad if you know the options you have.

Exploring Income Protection Superannuation

With the recent changes in government policies regarding insurance, income protection superannuation is becoming more and more attractive to people. Experts advise people that although buying different types of insurance through your superannuation has more advantages than disadvantages, it still pays to be cautious and approach the idea with eyes wide open. The rationale – there is still some degree of complexity to the income protection superannuation which could be quite a headache when making a claim.
To help you sort through the pros and cons of integrating your income protection with your super, there is a list of advantages and disadvantages given to you and help you choose wisely.

Advantages

• Insurance bought through your superfund is much cheaper and offers group discounts and lower premiums.
• Premiums are automatically deducted from your super fund freeing your monthly budget from additional financial strain.
• You pay less tax allowing you to get a higher coverage when needed.
• You can declare your super contributions as tax deduction if you are self-employed. This is despite using the contribution is used to buy an investment or insurance.
• Insurance under superannuation automatically accepts basic coverage which saves you a lot of paper works.
• It removes apathy because of the mandatory monthly contribution.
• Smokers and non-smokers pay the same cost. Moreover, there are also no occupational restrictions.

Disadvantages

• Your basic cover might come to an end without your knowledge because of inactivity or failure of your employer to pay it.
• The basic coverage within the super fund is lower than a regular insurance. Thus, you need to apply for higher coverage which could be annoying because of the various health checks needed for confirmation.
• The basic coverage lowers as you grow older.
• Income protection paid through your superannuation fund cannot be declared as tax deductible.
• Insurance payout made to a non-dependent is taxed at a maximum 16.5%.
• Delayed payments of benefits due to a long process of identifications and resolutions made to the claim.
• No assurance that the people you have intended the benefit to go to would receive the payout in the absence of the Binding Nomination.
• Your monthly premiums could eat out your retirement savings.

Exploring Other Options

Just like the scenario above: exhausting your income protection superannuation in 2 years and the disability pension program not providing much cover seems like a lose-lose situation. However, there are certain alternatives one can find.

First of all, expert advice is very crucial when you want to combine your income protection with your superannuation. Get all the necessary information and ask questions what other alternatives can be applied to your account.

Second, if you are fortunate enough, you might find yourself having a policy which has sufficient cover until you are 65. However, if this is not your situation, you could still make your super work for you by supplementing it with extra cash regularly. As long as you boost it, you don’t have any reasons to be anxious.

Finally, extra caution is still needed when you decide to go with the process of putting your income protection under your superannuation. If you are paying a reasonable amount for your premium at present, keep it and use it to supplement the insurance you have inside your superannuation. There is no need in moving your income protection insurance within your super if you could get the maximum benefit outside of it.