The future is very unpredictable, and there are events that take place that can easily paralyze you financially. One such event is if you are unable to continue working due to an illness or injury. The inability to earn an income can completely throw your life in disarray, which is why having an income protection insurance cover is of utmost importance. You can decide to take out standalone income protection insurance, although Australian super funds also offer income protection policies.
If you decide to have your income protection insurance within your superannuation fund, there are certain benefits. For instance, your premiums are likely to be much cheaper than if you had a standalone policy. This is because your super fund purchases income protection as a group policy, and is therefore able to purchase the insurance at wholesale prices, and these low costs are then transferred to you.
You do not have to go through the hectic process of health and lifestyle assessment when you take out your income protection insurance. Australian super funds will include you in the group policy and the whole group will be covered irrespective of individual circumstances. This means that as long as you are a member of the super fund, you will be accepted unconditionally for an income protection cover.
In case you have an occupation that is deemed risky by insurance providers, this will not be an issue if you take out your income protection in your super. This is because you are included in the group policy. You will also end up paying for your premiums at a competitive rate since you are paying using your contributions to the fund. These contributions are taxed at a rate of 15 per cent. When paying for a standalone insurance policy, you will have to pay from your after-tax income, which may attract a tax rate of up to 45 per cent.
Once you have taken out your income protection insurance in an Australian super, you cannot claim for a tax deduction. Making a claim is also complicated because you have to satisfy the conditions of the insurance provider as well as those of the trustee of the super fund before any benefits are paid out. Even after the claim is deemed successful, the insurance provider will pay your benefits to the super fund trustee, who will then pay you. This process is not only lengthy, but may cause delays in accessing your benefits.
Some superannuation funds offer you a maximum benefit period of only two years. This may not be sufficient for you, especially if you have suffered an injury that may take longer to heal. You may also end up getting a very limited level of cover and benefits that may not address all your needs. The funds that are meant for your retirement are the ones used to pay for your premiums. This means that your retirement funds are eaten into and by the time you withdraw your retirement benefits, they may not be enough to take care of you in old age. Click here for more information about income insurance cover.
It is important to weigh the benefits and downside of income protection within a super so you can make the best decision for your situation.
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