Insurance policies can be bought in one of 4 ways:
- Through a financial adviser
- Direct from an insurance company
- From a company such as Choosi or life insurance direct. These companies do not provide advice and can only provide quotes and the relevant PDSs as opposed to a financial adviser who can recommend policies, insured amounts etc.
- Held inside your superannuation, which is the case for most Australians.
No matter where you purchase your Life insurance, Income Protection, Trauma insurance or TPD insurance from, the core idea is the same: If something happens to you that is covered under your policy, you get paid an amount to support you.
Some important differences you need to be made aware of:
Insurance through a financial adviser is tailored to you
Buying a life insurance policy through a financial adviser (sometimes known as a broker or insurance broker) generally means you’re buying the policy as an individual. This can enable the product to be tailored to your specific needs in which the adviser will get more details about your circumstances through a fact finder and detailed needs analysis. A financial adviser will also guide you through the underwriting process and complete a pre assessment with the insurers should you have medical conditions that need to be assessed before applying.
Another benefit of taking out your insurance cover through an adviser is they can help you access insurance policies that you can pay through your super.
Insurance bought directly from an insurance company has some limited flexibility
Buying insurance directly from an insurance company (generally online) has a degree of flexibility as long as you have an effective understanding of your financial position and relatively simple insurance needs. Direct insurance from the insurer can also sometimes be cheaper than going through an adviser although there is no support come claim time nor can the insurer make any recommendations on the suitability of the insured amounts, policy type etc.
Group insurance through a super fund is standardised, which can be great for basic levels of insurance cover
Superannuation funds buy standardised insurance policies in bulk from insurers and then offer them to their members. This type of insurance is commonly known as group insurance.
This can be a cheap way to purchase insurance and if you fit the super fund’s criteria then cover is guaranteed up to a certain limit. General medical checks aren’t required for the standard cover as long as you meet the criteria and are below the set limits.
Group insurance through super can be a cost-effective way to fund premiums however it should be noted that these are basic policies that a lot of the time is not enough to meet the financial requirements of their members. Below are some limitations on owning your Life, Total & Permanent Disability or Income Protection through super.
It may take longer to claim- When you claim on insurance through super, the benefit has to be paid to the super fund first as well as being approved to be paid to you by the super trustee. This can slow claim payments down for a number of reasons especially when some super fund trustees do not meet regularly.
Income Protection benefit may stop after 2 years – Default Income Protection policies normally have a 60 or 90-day waiting period and a 2-year benefit period which means you have to be off for 60 or 90 days before qualifying and then you will only be paid for 2 years. Income Protection policies outside of super have the option of being paid until age 65. Meeting the conditions of release is also a factor when deciding whether Income Protection should be paid for from super.
Your retirement balance can be impacted- If you pay your life insurance premiums from super, this means that there is less available money to invest. This could mean having less in retirement.
Not all types of coverage are available through super- Insurance such as Trauma/Crisis insurance, as well as Total and Permanent Disability own occupation or child cover, are not available through super. This could leave a gap in your insurance coverage.
Your life insurance benefit payments might be taxed- Generally, life insurance payments outside of super are tax-free. If the life insurance cover is owned through super and the benefit amount is paid to a non-dependant child or another adult (excluding spouse/dependants) then it may be taxed.
What to know more?
If you would like to discuss this article or your insurance needs please get in touch via our contact page or call 1800 737 926
The information provided here is general only and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant PDS.