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Insurance through super: is it right for you?

Taking out insurance through a super fund can be a great option for some members, but it does also come with some pitfalls.

Most super funds provide their members with insurance options and an option to increase, decrease or cancel your default insurance cover. There are many benefits of taking out insurance through super, which include:
– the ability to purchase policies in bulk
– not having to pay for premiums with your take-home income
– the convenience of having your policy managed for you
– most policies in super tend to be pre-approved, meaning there is no need for interviews or medical check-ups
– life insurance inside super is deductible to the fund at 15 per cent annually; whereas life insurance premiums held outside of super are not tax deductible.

However, there are some pitfalls of holding insurance through your super, including:
– there is generally a limit on the payout that can be received from an insurance policy purchased by a super fund. In public funds, it is usually between $100,000 and $200,000. For some people, this amount may be more than enough. However, if you have dependents and a mortgage, it may be insufficient to look after your loved ones should something happen to you.
– the types of insurance and levels of cover are limited
– typically insurance cover rises after reaching 50 years – taking a large chunk of contributions
– life insurance coverage ends when you reach a certain age (usually 65 or 70); policies outside of super may cover you for longer

Anyone using a super fund to provide insurance should ensure that they have an appropriate death benefit nomination in place that specifies who their super will go to in the event of their death. If you nominate a non-tax dependent as the beneficiary then they might end up with a hefty tax bill in the event of a lump sum payout (whereas, life insurance payouts outside of super tend to be tax-free).

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News

Authority for super complaints introduced

December 14, 2018

The new Australian Financial Complaints Authority (AFCA) will make it easier for individuals and small businesses to make complaints about their superannuation financial firms.

The Coalition government has responded to criticisms of previous dispute resolution bodies by creating a new financial disputes framework. AFCA has been described as a “one-stop shop” that will improve outcomes for consumers and increase the efficiency of the dispute resolution process.

AFCA’s jurisdiction
AFCA has been given authority over a range of complaint areas including:

What you can make complaints about
Your super complaint to AFCA must adhere to its governing rules. AFCA has specific time limits for complaints but no monetary limits.

You can make complaints about: