Income Protection Quote  |  Life Insurance Quote  |  FAQ |  Case Studies |  Contacts |  Testimonials | 

| homepage > Income Protection Insurance via Superannuation

Income Protection Insurance via Superannuation

Last modified: 4 Feb 2014

What is Insurance via Superannuation Funds?

When you opt for insurance via your superannuation funds, the insurance policy will be owned by a trustee of the super fund while you will be a contributing member of that particular fund. The contributions you make will be used by the trustee to pay the insurance premiums. The main benefit of insurance via superannuation funds is tax deductible premiums. Superannuation funds can either be a self-managed fund or other complying funds. There are various insurance companies that offer insurance plans via super funds, and TOWER Australia is one of the leading insurance providers.

Facts about Superannuation Insurance Plans

• You can be a member of more than 1 super fund at a time. You can use one fund to protect you for 1 or more insured events; while you can use another fund to accumulate retirement benefits.
• You can opt for various insurance plans under super funds. Some of the most beneficial plans that are offered by insurers include term life insurance plans, TPD plans, income protection plans and trauma insurance plans. Total and permanent disability plans are meant to protect the policy holder against financial problems that may occur due to being permanently disabled. Trauma insurance plans are meant to protect the policy holder against monetary problems that may occur when due to being diagnosed with a critical illness such as cancer.
• Total and permanent disability cover along with income protection insurance plans can only be purchased if your super fund is also offering a death cover.

Why Opt for Superannuation Insurance Plans?

• Superannuation funds offer cheap insurance plans to members of the super fund. In addition, members of the super fund may be able to enjoy additional benefits such as tax concessions for income insurance plans.
• Members of funds can use Superannuation Guarantee and Salary Sacrifice contributions to pay for the selected insurance plan. Alternately personal contributions can be used to pay the premiums of insurance plans.
• It should be noted that death and permanent disability covers do not have tax deductible premiums. However; in the event of either death or permanent disability, the policy holder will receive a death benefit that is tax free provided it is paid to a dependant. If the death benefit is paid to a non-dependant then tax rates of 16.5% – 31.50% are applicable.
• Total and permanent disability insurance compensation payment has a tax free portion that is calculated by the insurer via a fixed formula. The remaining balance will be taxed at the pre-decided rates.
• Cash flow flexibility using pre-tax dollars is an option for members of super funds.
• Members of superannuation funds face a reduced risk of lapsed policies and being underinsured or not insured.

Things to Remember Before Opting for Insurance via Super Funds

• Since the cost of the insurance plan is included in the contribution cap, if you opt for an expensive insurance plan then you will have lesser funds available for investments.
• All the compensation payments made for successful claims will be given to the trustee of the super fund hence; you will be given the funds by the trustee provided that you comply with the rules of the fund and are eligible to receive the compensation payments.
• When the life insurance compensation payment is paid to the trustee of the fund, he can determine which one of your dependants or beneficiaries is suitable to receive the compensation payment.
• In some situations the trustee may be unable to claim a tax deduction for the premiums or may not be able to release the funds to you. This can happen when you opt for added security of own occupation permanent disability insurance plans.
• Outside of superannuation funds, the claim proceedings for both TPD and term life insurance plans are generally free from tax implications.

Issues You May Face with Income Insurance Plans under Super Funds

While the cost of income protection plans is usually tax deductible under super funds and standalone policies, in some cases the claim benefits may be taxed at an individual margin rate. Hence opting for an income protection plan under super funds may not offer you any additional tax benefits. This being said, the premiums you pay can be paid at the concessional rates rather than at the cash flow or marginal rates.

Important Information about Critical Illness Plans and Super Funds

• Superannuation funds are required to be maintained for receiving both retirement benefits and death benefits. In addition, super funds may offer one or more perks such as provision of benefits after being terminated from a job, income protection compensation due to health issues and death benefits after retirement. In some cases, people who are older than 65 years old may receive financial help if they are temporarily incapacitated due to which they cannot work.
• Purchasing critical illness plans under superannuation funds tend to cause certain problems for the policy holder. For instance, the policy holder has to follow a 2 step process and meet additional conditions in order to get the compensation payment. Trustees of the super fund have to consider various factors before they purchase critical insurance plans for the super fund members.
• The most important thing members of funds should remember is that the policy holder can have problems getting the claim benefits under the conditions of release requirements. In addition, if penalties come into the equation then the fund member can stand to lose up to half the fund in fines and scrutiny from the Australian Taxation Office.


Before deciding if you should opt for insurance plans under superannuation plans, you should make it a point to consult a financial advisor who can give you personalized advice based on your current financial and personal situation. While most people believe that superannuation insurance plans are ideal due to the many benefits offered; many people are not aware that superannuation insurance plans have limitations and can cause problems for the super fund member if he is required to pay taxes or fines due to any reason.


Income Protection Insurance
Life Insurance

What do you want to do next ?