While legislation means all working people in Australia have compulsory superannuation, it’s safe to say many of us are vague on the details of how our super funds work and what is possible in terms of how policies are held within the fund.
Superlink is one such concept. It provides a way to link life insurance policies such as income protection (IP) and total and permanent disability (TPD) inside and outside your super fund.
Essentially Superlink allows you to split payments on IP or TPD policies so some of the premium is paid from super and some is out-of-pocket, allowing access to different aspects of the policies.
In this post we’ll look at some of the reasons why you would Superlink your TPD policy, for example.
What are the advantages of superlinking?
The fact superannuation is held within a trust structure is both a benefit and, sometimes, a burden. Your superannuation is held by a trust along with other members, providing security, growth and tax benefits.
But a super trust also imposes restrictive rules on releasing money from the fund, meaning all the benefits of a policy held within the trust such as TPD may not be easily accessible should they be required.
By Superlinking a TPD policy, for example, you can access the benefits of a TPD policy that may not be available if the policy is held wholly within the fund. You can also more readily meet the costs of a life insurance policy such as IP or TPD by paying for some of the premiums from your super fund.
Additionally, premiums on policies paid via your superannuation fund generally receive a 15% tax rebate.
Finally, claims on policies partly held outside of your super fund can be processed more quickly, without the restrictions on access inherent in the super trust structure.
The detail on Superlinking and TPD
TPD policies offer either ‘own occupation’ or ‘any occupation’ coverage.
As the name suggests, own occupation coverage provides a payment when a person can’t continue to work in their own occupation because of illness and/or injury.
Any occupation coverage will provide payments when injury or illness prevents you working permanently in any occupation suitable for your experience, education or training.
TPD policies within superannuation funds only offer any occupation coverage.
If you are a carpenter, for example, and have an accident which prevents you from continuing in the trade, own occupation TPD coverage would likely to entitle you to benefit payments under the policy.
Under an any occupation policy, however, the insurer may decide that you could work in another employment based on your education, training and experience and refuse payments under the policy.
By utilising the Superlink option, it’s possible to split premium payments on the TPD policy so that the any occupation portion is paid from your super fund, while the own occupation portion is personally paid by you outside of your superannuation fund.
In doing so, you can access the benefits of both own and any occupation coverage, while still receiving the benefits (such as reduced tax) on the ‘super’ part of the policy.
Are there any downsides?
The decision to hold a TPD policy – or a portion thereof – outside of your superannuation policy, has some drawbacks.
Unlike super, premiums are not tax deductible when the policy is personally held. Pre-existing medical conditions and relevant lifestyle factors like smoking may affect the size of premiums, compared with a policy inside superannuation where these factors may not be considered as part of group cover.
Additionally, there may not be a choice between ‘any’ or ‘own’ occupation coverage for a policy held outside of super for some professions that are more likely to make a claim.
Speak with Bourke Love Lawyers
At Bourke Love Lawyers we have the experience and expertise to advise whether you have a reasonable prospect of success.
However, if you are interested in a Superlink policy, you should speak to your financial adviser or insurance broker to see whether that type of policy is accessible to, and right for, you and your circumstances.
Bourke Love Lawyers has offices in Lismore, Kingscliff and Ballina on the NSW north coast. Call us today on 1300 15 15 45 or visit us at bourkelove.com.au for a free initial consultation.
Please note: This is not legal advice and should not be taken as such. Bourke Love Lawyers does not have a financial services licence and this is not intended as financial advice. If you are interested in a Superlink policy or obtaining a TPD policy, you should speak to your financial adviser or insurance broker to see whether that type of policy is accessible to, and right for, you and your circumstances.