Many Australians hold some form of personal insurance, with many of us choosing to hold insurance through our superannuation provider. However, few truly understand the cover, how it works and if it is actually suitable to our personal needs.
A few common misunderstandings we encounter:
Group Insurance
Group insurance covers a group of people, most commonly members of a particular super fund.
Most industry super providers will offer default (group) insurance. This insurance has not been underwritten by an insurance provider, tends to be lower quality with the benefit amount decreasing as you get older, when the likelihood of a claim becomes higher.
Most industry super funds will allow you to fix your cover or apply for higher levels of cover through group insurers (subject to underwriting).
Retail Insurance
An alternative to group insurance is retail insurance, with more industry super funds providing the option to fund these retail policies.
Retail insurance policies are underwritten by the insurance provider before cover is offered. This generally results in the insured gaining higher quality cover and generally a higher chance of a successful claim as the insurance company will note any exclusions from cover up-front.
Linked Policies
This option allows you to combine cover. The most common situation is linking total and permanent disability (TPD) cover (life or trauma) with TPD. Linking policies reduces the premium more than if you were to hold the cover separately. However, many people do not realise if you claim on one (i.e. TPD), this amount will then reduce from the life benefit available, unless you have a buyback or reinstatement option on your cover. This option tends not to be offered with industry super insurance.
Income Protection
Many people understand they have income protection but wait periods before a claim can be made, these vary from 14 days to two years. It is important to know what your wait period for a claim is to ensure you can fund your living expenses whilst being unable to work. In addition, benefit periods typically vary from two years to age 65, this is the length of time you are able to be covered/receive income payments from the insurer.
We like to think we would recover within two years but it is rather common to be incapacitated for longer than two years, for example, mental health or spinal injuries, extended benefit periods should always be considered when applying for cover.
Premium Types
Stepped: these premiums start out lower but the base premium increases as you get older. Generally, this type of premium is good for younger applicants working on building wealth or clients who only need insurance for a shorter period of time.
Level: these premiums start out higher but as you age, they increase slower generally with CPI. If you think you need insurance up to retirement at age 65, this type of premium will work out more cost-effective for the life of the policy.
Insurance benefit amount
It is important to ensure you have the right level of cover to suit your needs such as clearing debt, maintaining your lifestyle and funding medical expenses. You may have other items of importance to cover such as funding children’s education.
At The Investment Collective, we take a comprehensive approach to providing financial advice. An important part of that advice is insurance and ensuring you have the right cover in place to suit your needs and complement the achievement of your goals and objectives.
Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.