Life Insurance Rollover

Is life insurance through super enough?

While it may be an
affordable option and a good option to ensure continuity of cover, the default
level of insurance in your employer super will not always provide an adequate
level of cover for your needs or be too limited in its conditions. For example
the benefit period for Income Protection may only be two years, when a longer
benefit period is required.

If you need a better
policy, how can you still pay for it through your industry fund or employer super?

This is where a life
insurance “Superannuation Rollover” can be used. Life insurance
continues to be paid for with your employer or another complying super fund,
but towards the policy you have switched to with another insurer.

There
are a number of insurers in Australia that now offer hassle-free rollover
solutions with some offering a premium discount as an additional bonus, due to
the premiums being paid annually instead of monthly.

So what is a superannuation
rollover exactly?

A superannuation
rollover is where a fund member transfers funds from a complying superannuation
fund into a retail policy with a life insurance company. The policy must be
held within the life company’s superannuation life cover plan. The premiums
that are transferred or rolled over can be used to pay for Life, TPD and Income
Protection cover.

A
normal insurance application will need to be completed and accepted by the new
insurer and your adviser and the insurer and your super fund, will work
together to assist with the application and ensure your premiums are paid on
time.

Applicants that want to become members of the providers superannuation fund that are a member of a SMSF will generally have to apply to become risk-only members. Applicants will have to meet certain eligibility requirements under superannuation law and may need to submit medical evidence to the insurer. Applicants will need to be approved by the new provider before cancelling the insurance held in their previous fund.

Reasons to consider a
life Insurance rollover

There are a number
of reasons why someone might consider a life insurance rollover, these could
include:

• Not
  satisfied with the cover provided in original policy
• Limited
  sum-insured
• Limited
  benefits and features offered
• Restrictive
  policy options. Restrictions around benefit periods, waiting periods, payment
  frequency.
• Current
  fund may only offer certain types of cover.
• The
  external provider can often combine policies to provide discounts on multiple
  policies.

Insurance inside super versus super held in your own name

Unfortunately, because of government
legislation and superannuation law, most insurers will place restrictions on
the benefits and features of policies that are funded through superannuation.
Another option for people with only default cover through superannuation is to
look to apply for a standalone policy held outside of super.

Benefits of doing so include:

• Benefit payments to non-dependents are free from tax.
• Benefits paid directly to the policy owner. Straightforward claims process.
• Greater range of policies available.
• Ability to tailor cover to match specific needs.
• Income protection premiums are tax deductible.
• Split cover is now offered so that part of the insurance is paid from super and part from your own cashflow. In this way, if you make a claim, it is first assessed under the definitions under superannuation law and if they are too restrictive, the claim is then assessed under the more flexible direct insurance policy held outside of super. While this doesn’t guarantee you will be successful in your claim, it does provide the same benefits of a policy held outside of super, which can offer better definitions than within super, however at a cheaper price.