Have you been considering having life insurance through your super? Or maybe you already have life insurance through your super and you’re wondering if this is the best option for you? There are pros and cons to every situation so let’s take a look at 7 disadvantages of having life insurance through your super so you can see both sides of the equation and explore all of your options.
Life insurance amounts may be limited
If something were to happen to you and your family had to depend on your life insurance policy to cover the cost of living and bills, would the amount of your policy through your super be enough? It’s important to check your coverage amount to determine this if you don’t already know it. Many families will need 500k to one million dollars or more in life insurance.
You still need additional trauma insurance
Insurance through your super does not cover trauma insurance. If there was a serious accident or illness, there would not be a lump sum of money available to pay for immediate expenses. With trauma insurance, you’d be able to recover while having access to funds to help get you and your family by.
Your super insurance policy has a trustee who will determine how the funds are distributed. In some instances, you may be able to sign a binding death nomination, but even if you do, you are still limited on who you can choose to be the beneficiary.
Payouts take time
When a claim is made against a life insurance policy through your super, it has to go through your super before any funds can be distributed. Due to this, the payout can take more time and be delayed. This delay can cause hardship for your family as they are trying to settle your final expenses.
Taxes may need to be paid
If your policy is paid to a person who is not considered to be dependent on you, taxes may be assessed against the death benefit.
It reduces your super amount
In most cases, the amount you need to pay for your insurance policy comes directly from your super funds. This means that as you pay for your policy, there will be less money to invest and save for retirement. You can offset this issue by making additional contributions voluntarily.
If you have income protection insurance through your super, there is a limit on how long benefits can be paid out – usually two years. If you are off work for longer than two years, you’re left without income protection.
While having life insurance through your super has many advantages, it’s important to note the disadvantages as well so that you can make informed decisions when it comes to your finances and protecting your family. Consulting a professional adviser is always a good idea so that a strategy can be developed specifically for you and your goals