10.1 Insurance within super

Group insurance

Superfunds and MySuper products can offer these insurance deals because they group their members together into very large, combined wholesale insurance policies. This enables them to buy insurance at cheaper rates because large groups of super fund members are insured under a single insurance policy held in the name of the super fund's trustee.

These superfunds group insurance policies can also be simpler than regular insurance because they are usually based solely upon the member's age or other overall characteristics of the groups. Some super funds may however split members into higher risk or lower risk occupational groups e.g. trade workers versus executive managers, heavy blue collar versus light manual, and white collar versus professional.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

10.2 Type of insurances

 Personal insurances available within the superannuation market:

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

10.3 Term life insurance

Holding personal insurance policies through superannuation can be tax effective as the premiums are able to be funded by pre-tax superannuation contributions. The superannuation fund is able to claim a tax deduction for the premiums paid.

The function of a term life insurance is to pay a lump sum in the event of the death of the life-insured. Policies will also offer a terminal illness benefit, which allows an advancement of the death benefit in the event that the life insured is unlikely to live, for instance, for any longer than 12 months or 24 months.

Term life insurance:

• provides a lump sum benefit
• may be offered as an ordinary policy via superannuation
• cover is provided worldwide

The main objective of this cover is protect individuals, families and business in the event of the policy holder passing away. The lump sum received can be used to pay debts, pay funeral costs and provide an income stream to the survivor(s).

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

10.4 Total and Permanent Disablement (TPD) Insurance

Total and permanent and disablement (TPD) cover is a lump-sum benefit payable on the total and permanent disablement of an insured person, which can be funded through superannuation.

A total and permanent disablement means the insured is never able to work again in either:

• an occupation reasonably suited by training, occupation or experience, or
• their own occupation, for instance the occupation in which they where employed prior to disablement.

TPD Definitions

TPD any occupation - insurance against the member suffering an illness or injury that is likely to result in the member's permanent inability to work in a job for which the member is reasonably qualified by education, training or experience.

TPD own occupation - insurance against the member suffering an illness or injury that is likely to result in the member's permanent inability to work in the member's own occupation.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

10.5 Income protection within super

Income protection, also known as salary continuance insurance, is a type of insurance policy that provides financial protection to individuals in the event of illness, injury, or disability that prevents them from working and earning an income. In the context of superannuation in Australia, income protection insurance is often offered as an optional benefit within a superannuation fund.

When you have income protection insurance within your superannuation, it means that you are covered for a portion of your income if you are unable to work due to a covered event. The specific terms and conditions of the policy, such as the waiting period before benefits kick in and the benefit period, can vary depending on the insurance provider and the superannuation fund.

Key features of income protection insurance within superannuation

Significant changes to income protection insurance in Australia from 2020

Changes were introduced by APRA and aimed to address sustainability concerns and improve the quality of insurance products.

Key Changes

• Agreed value policies are no longer sold since April 2020.
• Benefit payments are now based on the insured person's income over the preceding 12 months.
• The maximum coverage term for income protection policies is proposed to be limited to five years from July 2021.
• Guaranteed renewability is no longer required, allowing insurers to alter terms or decline policy renewals.

10.8 Taxation of insurance benefits paid through super

The insurance policy is the trustee of the superannuation fund. There is no tax payable on the proceeds received by the trustee of the superannuation fund. The insurance proceeds are generally added to the member's account and become part of the superannuation account balance.

Any benefits being paid out of the superannuation account balance will be taxed under superannuation benefit taxation rules.

10.10 Insurance in super and low-balance or inactive accounts

In 2019, the Australian government passed legislation as part of the Protecting Your Super package of reforms, introducing a range of initiatives aimed at protecting the superannuation balances of individuals with low-balance and inactive accounts.

These initiatives were implemented to address concerns about excessive fees and unnecessary insurance premiums eroding the account balances of such superannuation fund members. Here are the key features of the legislation:

Fee Caps

The legislation introduced fee caps for superannuation accounts with low balances. For accounts with a balance below $6,000, the annual administration and investment fees charged by superannuation funds are capped at 3% of the account balance. This measure aims to prevent excessive fees from disproportionately reducing the account balances of low-balance accounts.

Insurance Opt-in

The legislation also implemented changes to the provision of insurance within superannuation. For new superannuation accounts opened after 1 July 2019, insurance coverage, including life insurance, total and permanent disability (TPD) insurance, and income protection insurance, is no longer provided automatically. Instead, members must actively opt-in to receive insurance coverage. This measure helps prevent unnecessary insurance premiums from eroding low-balance accounts.

Inactive Account Transfers

To consolidate superannuation accounts and prevent the proliferation of multiple inactive accounts, the legislation introduced a process for automatically transferring inactive low-balance accounts to the Australian Taxation Office (ATO). An account is considered inactive if no contributions have been made for a continuous period of 16 months and the account balance is below $6,000. The ATO then uses data matching to identify and consolidate the accounts to prevent unnecessary fees and insurance premiums.

These initiatives were introduced to safeguard the retirement savings of individuals with low-balance and inactive superannuation accounts by capping fees and preventing unnecessary insurance premiums. By addressing these issues, the legislation aims to protect and preserve the superannuation balances of fund members, particularly those with smaller account balances.