How to use your super for tax effective insurance
If you’re one of the many Australians that are underinsured, you might be surprised to learn that your super fund may be able to provide the cover you need.
Many people are unaware that their super fund can deliver more than just super. In fact, your super fund is well placed to provide you with insurance which could support you and your dependants in a time of need.
Australians’ insurance habits
Judging by the figures, Australians are much more worried about something bad happening to their cars or homes than to themselves. While 70% of us have car insurance1 and around 50% have contents or building insurance2, only 2 in 10 of us have life insurance1 and a mere 1 in 20 have Total and Permanent Disability3 insurance. Experts estimate that Australians are collectively underinsured to the tune of around $3 trillion4.
Many of us just never get around to arranging insurance cover either because we’re not sure how to do so, or because we think it will involve lots of complicated paperwork. If you’re one of those people who would like to make sure you and your loved ones are covered should tragedy strike, the good news is you can arrange to have Death and Total Permanent Disability cover (TPD) through your Essential Super account.
Better value, less hassle
As this insurance cover is linked to your super account, the premiums are deducted from your super balance and not your after tax pay. Without going into too much eye-glazing detail, this means it may be a more tax-effective approach.
The big advantage of taking out insurance in this way is that paying for the cover is a set and forget arrangement. Once you have the level of insurance cover you want you don’t need to do anything, unless you choose to adjust or cancel your cover as your circumstances change. Provided you’re less than 70 years old, your cover will generally stay active as long as there’s enough balance in your super account for your premiums to come out monthly.
Sources: 1. Roy Morgan Research, March 2012, based on Australian population aged 14+ 2. National Motor Vehicle Theft Reduction Council – Theft Watch May 2012, based on overall thefts 12 months to March 2012 3. Roy Morgan Research, 12 months to May 2012, Australian population aged 14+. 4 Rice Warner, Underinsurance in Australia research report 2011, table 1, page 3
Colonial First State Investments Limited ABN 98 002 348 352, AFS License 232468 (Colonial First State) is the Trustee of Commonwealth Essential Super ABN 56 601 925 435 (Fund) and the issuer of interests in Essential Super which is a product of the Fund. This document may include general advice but does not take into account your individual objectives, financial situations or needs. A Product Disclosure Statement (PDS) for Essential Super is available from commbank.com.au/super or by calling 13 4074. You should read the PDS and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Colonial First State is a wholly owned subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 (‘the Bank’).The Bank provides certain distribution and administrative services to the Trustee. The Bank and its subsidiaries do not guarantee the performance of Essential Super or the repayment of capital by Essential Super. An investment in Essential Super is via a superannuation trust and is therefore not an investment in, deposit with, or other liability of the Bank or its subsidiaries. An investment in Essential Super is subject to risk, loss of income and capital invested.