Insurance is perhaps once of the best development in the finance space. And this is because it allows you to protect yourself from destructive uncertainties. However, this fabulous cover comes at a cost. And in most cases, it can be quite expensive, depending on what needs to be covered.
To mitigate this cost, a popular choice you’ll hear of is resorting to your superannuation fund. And this is because it’s usually cheaper thanks to bulk purchases and pre-tax cash purchases. Even more, you get automatic acceptance and income protection, among others. Sounds great right?
Unfortunately, this can be quite dangerous for various reasons. In this article, we’ll show you why insurance through super can be a death trap. Let’s go!
1. Limitation to the Type of Insurance You Can Obtain
A significant downside to insurance through super is that there’s a limit to the types of insurance you can obtain under it. Generally, you can only get life, income and TPD through super. For instance, you can’t get cover for trauma insurance. As such, if you suffer from a critical illness, you’ll be left on your own.
2. Limitation to the Terms of The Insurance
There’s also a limitation to the terms available under insurance obtained through super. Generally, there is a cap coverage available on insurance purchased through super. And in such instances, it might be unable to cover the cost of repair while leaving you in financial difficulties.
3. Imposition on Taxation
Usually, proceeds from life insurance and TPF gets taxed. And this largely depends on your circumstances or that of your beneficiary. However, insurance obtained outside super doesn’t subject you this condition. As such, you’re placed at a possible tax deficit when you choose insurance through super.
4. Reduction in Retirement Savings
When you obtain insurance through super, you use your retirement savings to pay for the premium. And although it’s cheaper compared to insurance outside super, it reduces your retirement savings. As such, if you’re not careful, you might find yourself exhausting a large part of your superannuation fund before retirement.
5. Cancellation of Insurance
Generally, the continued existence of your insurance depends on the continued deposit by your employer. And it can be quite dangerous since it’s not in your control. Hence, in situations where your employer doesn’t pay into your super account for 16 months, your insurance automatically gets cancelled.
6. Trustee Controls the Policy
When you get insurance through super, your policy is under the control of a trustee. And they determine how your funds get distributed. They can even go as far as make changes to the plan.
7. Pay-outs Might Be Delayed
Claiming insurance made through super will have to pass through some process before it gets distributed. And this may take some time. In turn, this might cause financial hardship to you and your family.
It’s simply best to try out insurance outside super. This way, you can adequately and entirely cover yourself from damage. You can check out our service offerings for your insurance needs. In case you also need to speak to an expert, you can contact us at Bearded Dragon Finance.