Income Protection Insurance - Inside or outside of Super....

[Kinnon Bell]

Hi All,

Just hoping for some pointers on income protection insurance and whether there's any disadvantage of having it inside of super.

For the last few years I've had it external to my super. I'm redoing my budget at the moment and seeing where I can save some money so I rang my super company to ask about the income protection insurance that's included in my super.

I had (incorrectly) assumed it was a limited protection with only a benefit period of 2 years. I was just informed that if I make a claim before the age of 58 then I will be paid up until the age of 65 so essentially I've been doubling up on income protection insurance.

Forgetting about the specifics at the moment - ie what is and isn't covered, occupation, exclusions etc if I were to set up my income protection insurance within my super are there drawbacks?

Thanks in advance!

 

[DaveM]

Who is the beneficiary of the IP policy, you or the super fund? If you are injured and do not meet the requirements for a condition of release for your super, how can you access the proceeds of the IP policy?

What about other insurances like TPD, life, trauma?

 

[Kinnon Bell]

Good point Dave, thanks for that. I'll look into it.

 

[Sean M]

Kesse I provide advice to clients on these matters very regularly. I am unable to discuss any specifics of your case however I can say that in general terms.

Income protection inside super is really done for those who do not have the cash flow to afford it outside.

Exclusions etc are dependent on you.

You also have Income protection (IP)where you don't get underwritten ( auto cover) and then IP where you are underwritten.

You also have to understand the type of IP your getting inside or outside.

It can be as simple as you need or as power packed with options as you want. The key thing you want to know is does the company pay out and if so how much did they pay last year for IP and what items were covered.

All the best, should you need formal advice on this matter or need assistance I am happy to help.

Sean

 

[weg]

Forgetting about the specifics at the moment - ie what is and isn't covered, occupation, exclusions etc if I were to set up my income protection insurance within my super are there drawbacks?

Thanks in advance!

What do you mean, set it up?

Government and industry super comes with temporary and permanent disability built in - you can't personalise or modify it that i know of.

Who is the super with and can you get hold of the conditions and find out the detail?

 

[s0805]

Hi Kesse,

I am working on this from last 3 weeks on/off....trying to figure out if i would be better of having TPD,Death & IP outside OR inside super....I am reading the insurance handbook to understand the ins & out (they don't write this in plain English...trust me). so inside super it is far cheaper than outside....but outside will have more options for you and no 'condition of release' clause.....but do you really require that extra option to have it outside and pay more....'condition of release' is the issue i think...

wat I've learned so far

1) for death benefit will be the same based on your policy outside/inside super....may be outside claim could be done quicker...to avoid trouble for payout of death inside super make sure you have non binding nomination done and updated regularly if needed to....'Condition of release' does not apply to Death benefit inside super
2) For TPD & IP, now i've only investigated TPD & IP cover for 'own occupation' (basically covered for my specific field like professional)....outside super claim and benefits process could be easy and will be paid to you directly....inside super this will have to meet 'condition of release' as per policy document....

For me the 'Condition of release' for IP & TPD is the deal breaker if it needs to be met....
on the other hand i wonder why would someone ever take TPD & IP inside super if needs to be meet 'condition of release' which is basically to reach the retirement age.....imagine temporary disabled @ 30 yrs and you can't access your successful TPD claim which is sitting in super for another 25 years....same logic will apply to IP....this just doesn't sound right.....hopefully will get my questions answered.....

Also, i don't think it is only for the people who has cash flow problem issue outside super....i think better way to arrange this is once you have all insurances in super....you salary sacrifice the insurance premium every year...so it doesn't chew up your super over the years and costs you less after tax as well in premium.....

 

[Sean M]

Hi Kesse,

I am working on this from last 3 weeks on/off....trying to figure out if i would be better of having TPD,Death & IP outside OR inside super....I am reading the insurance handbook to understand the ins & out (they don't write this in plain English...trust me). so inside super it is far cheaper than outside....but outside will have more options for you and no 'condition of release' clause.....but do you really require that extra option to have it outside and pay more....'condition of release' is the issue i think...

wat I've learned so far

1) for death benefit will be the same based on your policy outside/inside super....may be outside claim could be done quicker...to avoid trouble for payout of death inside super make sure you have non binding nomination done and updated regularly if needed to....'Condition of release' does not apply to Death benefit inside super
2) For TPD & IP, now i've only investigated TPD & IP cover for 'own occupation' (basically covered for my specific field like professional)....outside super claim and benefits process could be easy and will be paid to you directly....inside super this will have to meet 'condition of release' as per policy document....

For me the 'Condition of release' for IP & TPD is the deal breaker if it needs to be met....
on the other hand i wonder why would someone ever take TPD & IP inside super if needs to be meet 'condition of release' which is basically to reach the retirement age.....imagine temporary disabled @ 30 yrs and you can't access your successful TPD claim which is sitting in super for another 25 years....same logic will apply to IP....this just doesn't sound right.....hopefully will get my questions answered.....

Also, i don't think it is only for the people who has cash flow problem issue outside super....i think better way to arrange this is once you have all insurances in super....you salary sacrifice the insurance premium every year...so it doesn't chew up your super over the years and costs you less after tax as well in premium.....

s0805 - you must be careful in giving advice as to how others structure their insurance. You are giving personal opinion which could be taken as advice.

 

[Kinnon Bell]

What do you mean, set it up?

Government and industry super comes with temporary and permanent disability built in - you can't personalise or modify it that i know of.

Who is the super with and can you get hold of the conditions and find out the detail?

Probably the incorrect terminology but by 'set it up' I mean to have it set up through my super.

Super is with REST. Haven't had a chance to go through the Ts&Cs yet but the insurance company REST use are the same as the insurance company I directly have my IP insurance through.

From what I've read so far it can be modified and the questions they asked on their website are the same as the ones they asked when I was signing up over the phone. What I'm not sure of if the policy is the same and who the beneficiary is.

Hi Kesse,

I am working on this from last 3 weeks on/off....trying to figure out if i would be better of having TPD,Death & IP outside OR inside super....I am reading the insurance handbook to understand the ins & out (they don't write this in plain English...trust me). so inside super it is far cheaper than outside....but outside will have more options for you and no 'condition of release' clause.....but do you really require that extra option to have it outside and pay more....'condition of release' is the issue i think...

wat I've learned so far

1) for death benefit will be the same based on your policy outside/inside super....may be outside claim could be done quicker...to avoid trouble for payout of death inside super make sure you have non binding nomination done and updated regularly if needed to....'Condition of release' does not apply to Death benefit inside super
2) For TPD & IP, now i've only investigated TPD & IP cover for 'own occupation' (basically covered for my specific field like professional)....outside super claim and benefits process could be easy and will be paid to you directly....inside super this will have to meet 'condition of release' as per policy document....

For me the 'Condition of release' for IP & TPD is the deal breaker if it needs to be met....
on the other hand i wonder why would someone ever take TPD & IP inside super if needs to be meet 'condition of release' which is basically to reach the retirement age.....imagine temporary disabled @ 30 yrs and you can't access your successful TPD claim which is sitting in super for another 25 years....same logic will apply to IP....this just doesn't sound right.....hopefully will get my questions answered.....

Also, i don't think it is only for the people who has cash flow problem issue outside super....i think better way to arrange this is once you have all insurances in super....you salary sacrifice the insurance premium every year...so it doesn't chew up your super over the years and costs you less after tax as well in premium.....

Thank you for sharing your research - very helpful.

Cashflow isn't an issue but every $$$ I can save helps go towards the next IP purchase.

The reason I'm happy to have it all through my super and for the max amount possible for Life, TPD etc is I don't plan on being reliant on my super when I reach the preservation age - I plan on being financially free well before then.

 

[weg]

Probably the incorrect terminology but by 'set it up' I mean to have it set up through my super.

Super is with REST. Haven't had a chance to go through the Ts&Cs yet but the insurance company REST use are the same as the insurance company I directly have my IP insurance through.

Is this one that your employer pays for?

Mentioned not having to set them up because most industry funds offer insurance built in rather than as an optional custom fit add on.

Husband who has been dealing with super for his employees for years has found most of the industry funds the easiest and most transparent to deal with, and some of the retail funds the worst. Just our experience.

As with anything where there is a hard push to buy a product, rely on your own research.

 

[Kinnon Bell]

Is this one that your employer pays for?

Mentioned not having to set them up because most industry funds offer insurance built in rather than as an optional custom fit add on.

Husband who has been dealing with super for his employees for years has found most of the industry funds the easiest and most transparent to deal with, and some of the retail funds the worst. Just our experience.

As with anything where there is a hard push to buy a product, rely on your own research.

Nope - it's the industry super fund for retail that I joined when I had my first ever proper job at Hardwarehouse (Bunnings) - I've been happy with them over the years so have always opted for them to be my super fund.

From talking to a fellow on the phone the other day, apparently REST is one of the only super funds that offers full income protection insurance and not a limited (ie coverage for 2 years) one.

 

[Kinnon Bell]

Ok, I've just given REST a call and if I were to claim on IP insurance it would be paid directly to me which I have confirmed in the PDS "Income Protection
insurance – How much is paid?
The IP benefit will be the lesser of 84% of your pre-disability
income and the amount you’re insured for. Of this amount,
9% of the monthly income benefit payable to you will be
paid as super to REST and the balance (less tax) will be paid
directly into your bank account"

Without reading the actual coverage details the main difference seems to be that 9% of the claim is paid into super and I would get the remainder.

 

[s0805]

s0805 - you must be careful in giving advice as to how others structure their insurance. You are giving personal opinion which
could be taken as advice.

Good point Sean. Just to be clear here, i did not intend to advise someone on their insurance structure..nor I am qualified to do like yourself....
I was just keen to share my ongoing research and glad to know it being appreciated.

Thank you for sharing your research - very helpful.

Kesse, glag it was helpful to you.....

apparently REST is one of the only super funds that offers full income protection insurance and not a limited
(ie coverage for 2 years) one.

That is not true....super i am with VICSUPER also provides IP until age 65....

"Income Protection
insurance – How much is paid?
The IP benefit will be the lesser of 84% of your pre-disability
income and the amount you’re insured for. Of this amount,
9% of the monthly income benefit payable to you will be
paid as super to REST and the balance (less tax) will be paid
directly into your bank account"

that's good Kesse....interesting to see what TPD benefits payments conditions are....

 

[DavidMc]

I recently did mine so I can tell you what I considered.

Inside of super is the better choice cashflow wise. No need to claim at the end of the year. If you did an accurate ITWV it wouldn't matter either way.

HOWEVER, the REAL question is - is the Income Protection Insurance your Super fund provides right for you?

For me, it wasn't, so I have TPD, Death, etc all in super, and IP with another company.

Items to compare:
- Benefit paid for 2 years or till 65
- Own occupation vs Any occupation (in regards to going back to work)
- 30/60/90 day payment commencement
- How much has this company paid out previously?
- etc

 

[Aaron Sice]

my REST premium inside super for my requested amounts was $16 per week.

outside of super was $10.90.

 

[DavidMc]

my REST premium inside super for my requested amounts was $16 per week.

outside of super was $10.90.

Wow... exact same policy, two different prices?

So they charge a higher price to have it in super? How could they justify that? $6 a week admin fee. What scumbags... obviously they know most people will opt for inside super for cashflow purposes.

 

[s0805]

- How much has this company paid out previously?

David, How can you find out this information?

 

[DavidMc]

David, How can you find out this information?

I did a quick Google and found you can get it here - http://www.theriskstore.com.au/, but it's $350 so not much help. I had a friend who sells insurance and they told me.

Kesse I provide advice to clients on these matters very regularly.
...
The key thing you want to know is does the company pay out and if so how much did they pay last year for IP and what items were covered.

All the best, should you need formal advice on this matter or need assistance I am happy to help.

Hopefully Sean can let you know a better way.

 

[s0805]

Just a quick update...had a catch up with my super company last week....

main one being what are the condition of release that one needs to satisfy to be able to get the claim money from super, once insurer has approved the claim for both TPD and IP....answer oh...99 out of 100 time no issue. Very rare cases....but what are the conditions....oh we'll get back to you...

Also found out that, IP policy till 65 with Own occupation will have benefit for first 2 yrs only after that 2 yrs IP claim has to be assessed against general occupation….

Though it would be good to share….

 

[Shaneelastic]

What super fund

 

[s0805]

What super fund

VicSuper.......