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Research shows that around one-fifth of Australians aged between 21 and 64 will suffer from a medical event, such as an accident, injury or terminal illness that will leave them unable to work. Despite this alarming statistic, it is estimated that 95% of Australian families have inadequate levels of personal insurance cover in place, with many relying solely on the default cover held within super to protect them. This is of great concern as insurance cover held through super can be very limited, with some types of cover prohibited from being held within the super structure.

What insurance cover can I hold within super?

You can hold:

• Life,
• Total and Permanent Disablement (TPD) with an ‘Any Occupation’ definition, and
• ‘Indemnity Value’ Income Protection insurance cover within super without any potential problems.

However:

• Trauma,
• ‘Own occupation’ TPD, and
• ‘Agreed Value’ Income Protection insurance cover is generally not available within super, as a result of legislation that came into effect from 1 July 2014. Since then trustees of regulated super funds (including SMSFs) can no longer provide insurance policies to members unless the benefits satisfy a condition of release such as death, terminal illness, temporary incapacity or total and permanent disablement, in the event of claim.

To address some of these restrictions, new styles of policies have emerged including flexi-linked Trauma and TPD, and income-linked Income Protection.

What is flexi-linking?

Trauma and ‘Own occupation’ TPD insurance cover can be ‘flexi-linked’ to Life and TPD insurance cover held within super. This is treated as one policy. The way flexi-linked policies work is that the super fund trustee owns the portion of the policy that can be released from super in the event of a claim e.g. ‘Any occupation TPD’ or the attached Life insurance cover (which can be released from super in the event of death). Whereas the individual owns the portion of the policy which would not meet a super condition of release in the event of a claim e.g. ‘Own occupation TPD’ and Trauma insurance cover.

 What is income-linking?

Similar to flexi-linked policies, Income Protection insurance cover held personally can be linked to cover held within super via the ‘income-linking’ structure.

The benefits of linking

• You can still fund the majority of your insurance premiums from your super fund whilst being able to access additional insurance features generally not available through super, including crisis benefits and specified injury benefits.
• Premiums for flexi-linked Trauma and ‘Own Occupation’ TPD are generally cheaper than ‘stand-alone’ policies.
• Rather than paying two sets of policy fees, you will only need to pay one, reducing the premiums.
• You will generally be entitled to a tax deduction for the portion of your Income Protection insurance premiums funded via your personal cash flow.

The risks associated

• In the event of a claim, any benefit paid under the flexi-linked policy reduces the linked cover by the amount paid.
• The level of flexi-linked cover cannot exceed the level of linked Life cover.
• If the cover held within super is cancelled for any reason, such as the non-payment of premiums, the linked cover is also cancelled.

If you’re looking for insurance cover and want to keep premiums affordable, a linked policy may be for you. Please contact your financial adviser for personalised information.

Please note: General Disclaimer Warning The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.