Paying insurance from super vs paying insurances personally, which is better?

Deciding whether to have your insurance from super fund or paying it personally can be a complex decision. The question that arises is which one is better? There is no straight answer to this question as each has its own pros and cons.

The main disadvantage of paying insurance through super funds is that the types of insurance available are limited. Super funds cover only three insurance types; Life, TPD “any” occupation, and income protection. On the other hand if you are paying insurance personally, all types would be covered.

When insurance is paid through superannuation account, the premiums for that insurance are not deducted from your own bank account. So, basically premium is paid with pre-tax dollars, this makes it cheaper. But if you are paying insurance personally then you have to pay premiums from your after-tax income. The difference can huge.

Some funds automatically accept you for health cover without need for a medical history check. This can be a benefit if you have any health issues. However, the benefits will be treated as superannuation money and will be not be available to you until your retirement, thus the payments can be delayed. On the other hand, if you are paying insurance personally then you get fairly immediate access because any benefits are paid directly to the beneficiary.

Insurance from super fund is often cheaper because super funds negotiate group discounts as they purchase in bulk. But this might not always be the case because sometimes when you are in excellent health, you can negotiate an equivalent or cheaper insurance cover directly from the insurance companies.

Another point to note is that the amount of cover may not be sufficient under super fund as you have a standard insurance cover determined by the employer and the cost will depend on the fund he is with. Any standard level of insurance cover will generally cover only a certain portion of your earnings and that is also for a limited time. To cover the shortfall, you can go with another income insurance policy personally.

According to Roy Morgan research in 2014, 28% of Australian work force agrees that they will switch jobs if better opportunity is available to them. Thus, if you change your organization your insurance cover through super fund may end without notice.
The biggest advantage of paying insurance personally is its portability. If you are paying insurance personally it means you can be insured no matter where you work or where you live. If you are planning to change your job or if you are working overseas then the best option for you is to pay your insurance personally.

To sum up, there is no magic answer when deciding to pay your insurance premium from your super fund or pay personally. It is important to consider what your particular scenario is and then decide what will suit you more.


Comments are closed.