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

Super funds typically offer three types of life insurance for their members – life cover, total and permanent disability and income protection insurance.

Most super funds will provide their members with insurance options and an option to increase, decrease or cancel default insurance cover. Typically, most will automatically provide you with life cover and TBD insurance, and some will also automatically provide you with income protection insurance.

There are many benefits of taking out insurance through super, including the ability to purchase policies in bulk, not having to pay for premiums with your take-home income, and the convenience of having your policy managed for you.

Additionally, 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 pitfalls of holding insurance through your super. Generally, there is a limit on the payout that can be received from an insurance policy purchased by a super fund.

For some self-managed super funds, there may not be a limit – depending on what your insurance company is willing to cover. In public funds, it is usually between $100,000 and $200,000. This amount may be more than enough for many people. If you have dependents and a mortgage, it may be an insufficient amount to look after your loved ones, should something happen to you.

Members of super should be aware that life insurance coverage inside super ends when you reach a certain age (usually 65 or 70), whereas policies outside of super may cover you for longer.

Another important note to make for new super account holders is that insurance may not be provided to you if you are aged 25 or under, or have a super account balance under $6,000. In that case, you can contact your fund to request insurance through your super directly, or are employed in a dangerous job where the fund chooses to give you automatic cover.

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. Speaking with a specialist like us can assist you in ensuring that your super fund balance doesn’t become the next big superannuation court case.