SMSF – insurance

Myth 1.

I have enough insurance inside my super

 Unlikely. Remember that the minimum level of cover provided through your super fund is set with all members in mind. It is therefore unlikely to be exactly the level of cover you and your family needs and may not be enough to cover all or even just some of your debts, loans and mortgages. (Four our clients in Qsuper – once you leave your industry employment your insurance ceases, in addition your insurance is set to automatically decline with age.

 Myth 2.

I don’t need insurance, the Government will look after me if I get sick or injured

 This would be nice but it’s not really the case. Centrelink will pay a maximum disability pension of $695.30 per fortnight for singles and $524.10 (each) for couples (1). Would this cover your current lifestyle, loan payments and mortgage?

 Myth 3.

Workers’ compensation will cover me

 Not usually. Workers’ compensation only covers accidents or injuries that occur during working hours or for an illness that are the direct result of your employment. The majority of accidents and illnesses occur outside of the workplace. So if you want to protect your lifestyle and your family it’s unwise to rely on workers’ compensation alone.

 Myth 4.

 Life insurance is not affordable

 For most Australians insurance is very affordable. For example, a 35 year old male, non-smoker applying for $500,000 Life Insurance cover, the monthly premium would be approximately $30. A 25 year old female, non-smoker applying for $500,000 of Life Insurance cover the monthly premium would be approximately $25.

 Myth 5.

 Life Insurance Companies do not pay claims

 Insurers do pay claims. In fact life insurance companies pay out almost $10 million every working day in claims to clients (2). This figure would be even higher if Australians had adequate levels of cover.

 Myth 6.

Many people have to pay higher premiums or cannot get life insurance at all.

 Insurers are in the business of giving people access to insurance at an affordable price. If they failed to do this, they wouldn’t have a business. Data from the Investment and Financial Services Association (IFSA) indicates that around 93% of applicants pay standard premiums for their life insurance (3).

People who have a higher risk of developing chronic illness or who work in high risk occupations are usually required to pay an extra premium to cover this risk, but this only applies to a few people (the remaining 7% of applicants). And only a very small number are not able to be covered at all.

 Myth 7.

Most people have enough insurance

 Unfortunately, this is not the case. In fact, research shows that 60% of families with dependent children do not have enough insurance to cover the household expenses for a year if the family bread winner were to die (4). We also know that, on average, those that have death cover through their super policy have less than half the level of cover they need (5).

Ironically, most  Australians insure their homes and cars but less than a third insure their most valuable asset, their income. This causes unnecessary hardship for numerous Australians and their families.

 A number of people think insurance is too expensive – until they need it. The premiums that these people paid were obviously worth every cent for both them and their family. The following are real claims from Zurich’s portfolio

 Most clients will not be able to answer this question without seeking the assistance of a qualified adviser. Stepped premiums are deceptively cheaper now, however, rapidly increase in price over the long term. If your client’s objective is to hold cover until age 65 and they are in their 20’s, 30’s or 40s it may be more cost effective to implement level premiums.

 Do you know if your insurance cover inside of super is unitised and decreasing with age?

 Most clients will not be able to answer this question without seeking the assistance of a qualified adviser. Many industry super funds sing the praises of the ‘cheap’ insurance premiums to their members but fail to let members know that their insurance covers are decreasing with age.

 Does all of your insurance gradually expire on your way to age 65 and is that suitable to your personal circumstances?

 Most people prefer to know the levels of insurance cover they have rather than playing a guessing game if they ever need to make a claim.

 Will you have enough insurance cover if you need it?

 The majority of super funds issue default cover that is age based, unitised and decreasing with age. Your client may think they have enough Life, TPD & Income Protection Insurance cover inside of super, however, years down the track when an event happens they are often disappointed that the cover has been declining without their awareness.

 By making an appointment with a financial adviser, the client can obtain information how to obtain fixed levels of insurance cover that will not decrease with age, rather the client can choose to have the cover increase with inflation.

 Are you aware that our financial adviser can assist you to arrange for your insurance premiums for Life, TPD and Income Protection to be paid from your superannuation account if cash flow is an issue for you at this point in time?

 Most clients do not know that this is an option to overcome cash flow issues.

 Do you know what Trauma insurance cover is?

 Basically 80% of the population will die from a trauma event – the most common trauma events are – Heart attack, Stroke and Cancer. Yet only 3% of the population are covered for Trauma events.

Did you know that you can insure your children between the ages of 2-16 for Trauma events?

Most people say that their family is important to them, however, many clients are not aware they can insure their children for trauma events.

 What would you do if you lost your income due to sickness or serious injury and could not meet your mortgage repayments?

 Most clients do not have sufficient cash reserves or a plan B if they lose their income.

 It is always a good idea to run these scenarios by your licensed adviser as they may be able to apply for special terms on the following conditions.