Apart from cashflow implications and tax advantages, timeliness is a key issue needing consideration when deciding whether or not to take out total and permanent disablement cover inside a superannuation fund, according to a financial services technical specialist.
“If we think about a client dealing directly with an insurance company there are two points that we are looking at. As soon as you put a superannuation fund in the middle, what we have [when making a claim] is the member or the executor of the estate going to the super fund. The super fund goes the insurance company and the insurance company then goes back to the super fund and then down to the individual,” MLC senior technical consultant Jennifer Brookhouse said.
“So you’re adding another layer in there and if money is really very important and say a family needs that money straight away you do need to think about some of the features of the policy and super funds, and can they make maybe an interim payment of $10,000 or $15,000 that may help through that interim period,” she explained.
Peripheral benefits arising from risk cover is another factor that must be carefully considered when looking at taking out insurance inside a super fund.
“Once an insurance policy goes into superannuation there are certain ancillary benefits that can no longer be paid,” Brookhouse said.
“Some simple examples are a person who is having income protection [the cover] may also pay for nursing staff to some point, or they may pay a benefit to a spouse if they need to give up work for a period of time. A super fund cannot make those payments so the benefits of the policy will change when it goes inside superannuation,” she added.
