How much do you value your income?

MOST of us don’t like to believe the unthinkable could happen to us and our families, so we delay investigating suitable insurance coverage for a “rainy day”.

But what if something did happen to you? How would you and your family cope financially? When life deals you a short hand, the last thing any of us want to worry about is whether or not we’ll be financially secure.

Having the right level of insurance can go a long way to ensuring your family doesn’t have to deal with financially devastating consequences. At the same time, it is something which is easily arranged, often through your existing super fund.

People insure cars and homes, but more often than not forget themselves and their livelihood. In fact, most Australians are underinsured when it comes to their income – an alarming detail when you consider that your income earning capacity is likely your largest asset.

A recent report by Rice Warner on under insurance shows that Australian families are underinsured for total and permanent disability by $7,182 billion and for income protection insurance by $437 billion.

Many people only have about half the cover they need to ensure that their families could maintain their standard of living after the death of a partner or parent. And most don’t realise until it’s too late, leaving themselves exposed to financial hardship.

Why have insurance?

Insurance reduces the risk of financial loss, protecting our families and loved ones, our family home, assets, income, future lifestyle, life goals and quality of life.

Taking the steps to insure against your death or TPD would provide a lump sum to your beneficiaries in the event of your death, or to you if you are deemed terminally ill or disabled to such an extent that you can no longer work.

Income protection insurance provides a pension-type payment to you in the event that temporary disablement, sickness or other injury prevents you from working.

How much insurance cover do you need?

A good place to start is to think about your current lifestyle and expenses and the things you would need to cover if you had some misfortune.

Ask yourself these questions:

• Could my family and I manage financially if my income no longer existed?
• Do I have regular loan repayments to meet?
• Do I have or am I planning on having children?
• Do I have people who are financially dependent on me?

Most people have a mortgage, education expenses for children, credit cards and other loans on top of their everyday living expenses. You should also consider ongoing medical care expenses in the event you are injured or sick. Your circumstances will change as life progresses so it pays to review your insurance every year to ensure your level of coverage is enough. 

Life changing events come without warning and you don’t want to be caught out in times of stress and emotion.  Being financially secure can make all the difference, and can be a lot easier and more affordable to achieve than you think.

Many superannuation funds now offer automatic cover when you join as a member of the fund.

Interestingly, a joint report between the Australian Institute of Superannuation Trustees (AIST) and Industry Funds Forum (IFF) in 2008 found about a third of Australians were not aware their super fund included insurance cover.

Why secure insurance through your superannuation fund?

There are a number of benefits to organising your insurance through your superannuation fund, including:

Group rates. If you’re with a large industry or retail super fund, their size means they can buy in bulk and negotiate lower rates, more competitive premiums and more generous terms with their insurer. It’s worth noting that other large groups you belong to may also have access to attractive group insurance rates.

Cash flow. Because the cost of your insurance is deducted from your super account and not from your take home pay, you are left with more disposable income. However, it’s important to remember that paying insurance from your super account may lead to your retirement savings dwindling.

Tax concessions. Buying insurance through your super fund allows you to use your super towards paying your premiums. You are using pre-tax dollars, often making it more tax-effective than paying for your super outside of your superannuation fund. However, insurance premiums paid outside a superannuation fund may also be tax deductible to an individual, and depending on your income, this option may be right for you.

Free pass on your medical. Many super funds automatically provide members with basic insurance cover without the need for completing a medical check upon joining the fund.

Taking out life insurance cover through your super fund can be cost effective, but it’s still important to ensure the cover is suited to your individual circumstances. Contacting your superannuation fund to see what existing cover you may have is a good place to start in assessing your insurance needs and options

Neil Purcell
Manager, Advisory Services
Energy Super

Any information or advice included in this document is provided by ESI Financial Services Pty Ltd (ABN 93 101 428 782 AFSL 224952). ESI Financial Services Pty Ltd is a wholly owned subsidiary of Electricity Supply Industry Superannuation (Qld) Ltd (ABN 30 069 634 439 AFSL 336567) the Trustee of Energy Super (ABN 33 761 363 685).