Small Premiums Means Small Life Insurance Cover

Consumers need to be aware of the cheap offers of life insurance that arrive in your letterbox.

The size of the premium determines the amount of cover. The smaller the premium the smaller the amount of cover.

The most important thing to consider when applying for life insurance is how much money would be required to meet your family's needs, in the event of your death.

Taking out Life Insurance from Super funds

One of the most important things to consider when taking life insurance from super funds is the quality and cost on the insurance the various funds provide.

Taking life insurance cover through your super fund is usually very cost effective, but it is important to ensure that the cover suits your needs.

As more employer superannuation funds are imposing tighter terms and conditions on payouts, it is crucial that you make yourself aware of this before relying on a funds insurance cover.

Advantages and Disadvantages of having Life Insurance in Super

Why taking out life cover and TPD insurance through a super fund can be beneficial:

  • It is usually cheaper because the fund is able to purchase in bulk and negotiate a lower rate.
  • It is tax effective since the premiums are paid for out of contributions made by your employer, or from personal contributions that generate either a direct tax deduction (if you are self employed) or are paid from pre-tax income, in the case of salary sacrifice contributions.
  • Basic life insurance cover often doesn't require a medical check, with some funds also providing additional life cover without the need for a medical.

The disadvantages of taking insurance through a super fund are:

  • Some funds provide members with access to less cover than they want or may need (small premiums = small cover).
  • There are sometimes delays in life insurance benefits being paid as these first go to the fund, which then distributes them to the beneficiaries.
  • Unless you have made a binding beneficiary nomination, you cannot be certain that your life insurance payout will go to the people you want it to.
  • The benefits are subject to more rules limiting who can receive a payout tax free.

Life insurance benefits paid from a super fund are usually tax-free if paid to a dependant.

Benefits paid from a policy held outside super is tax free no matter who receives it.

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Published on July 7-th, 2010 in Life Insurance
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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