How to Link Your Insurance and Save
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. That said, a court decision made in 2016 has made claiming under the 'Any' occupation category more onerous with greater reliance on retraining options.
However, Trauma, ‘Own occupation’ TPD, and ‘Agreed Value’ Income Protection insurance cover is no longer generally available within super. Trustees of regulated super funds (including SMSFs) cannot provide policies to members unless the benefits satisfy a condition of release such as death, total and permanent disablement, or reaching age 65, in the event of a claim.
To address some of these restrictions, different styles of policies are offered 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. Check with your TFC Financial Adviser and we'll be able to review what you have and see if you can make savings by linking your policies.