Most mainstream funds offer group life and disability insurance policies to their members. Setting up your own SMSF will usually mean that you need separate insurance cover. Before closing your current super fund, you should ensure you have reviewed your life insurance needs and have adequate cover in place.
There are many types of insurance to consider. The main four types of insurance are:
Life cover is also known as term life insurance or death cover. It pays a set amount of money when the insured person dies. The money will go to the people you nominate as beneficiaries on your policy. If you have not made a binding nomination then a trustee or your estate will determine where the money goes. Talking about dying isn’t easy. But it’s worth some thought. By setting up a way to support your loved ones after you die, you can ensure they can continue to pay the mortgage and school expenses, go on holiday and buy essentials.
Income protection insurance replaces the income lost if you’re unable to work due to injury or sickness. It is an important consideration for anyone who relies on an income to maintain their lifestyle. The benefit provides a replacement income of up to 75% of your gross wage. Payments usually continue until the client is able to return to work on a partial or full-time basis. Depending on the contract selected the benefits can last up to the client’s 70th birthday.
Trauma cover is also referred to as ‘critical illness’ cover or ‘recovery’ insurance. A serious illness can make it difficult or impossible for you to continue to work. If this happens, you will need to find a way to support yourself and your family. Trauma cover can provide a financial safety net for such events. Trauma insurance provides cover if you are diagnosed with a specified illness or injury. These policies include the major illnesses or injuries that will make a significant impact on a person’s life, such as cancer or a stroke. Trauma insurance cannot be held inside super (unless it was purchased before legislative updates) but can be purchased separately if you want cover.
Total and permanent disability (TPD)
A serious injury or illness can make it difficult or impossible for you to continue to work. If this happens, you will need to find a way to support yourself and your family. Total and permanent disability cover is almost always purchased together with life cover and can provide a financial safety net if you get a serious injury or illness that stops you from working. Total and permanent disability (TPD) insurance provides cover if you are totally and permanently disabled. Your insurer will define TPD as either when you can’t work again in any occupation, or you can’t work in your usual occupation. TPD insurance helps cover the costs of rehabilitation, debt repayments and the future cost of living.