Understanding your personal insurance options

17 January, 2019

What’s the difference between cover owned personally and cover held via super?

By Shayne Sommer

I recently had the opportunity to deliver our Simple Steps to Save seminar to a few of our corporate clients. One helpful hint from the seminar is not to double up on insurance premiums for personal insurance cover held personally or via superannuation.

This has raised many questions regarding the most appropriate ownership for personal cover and the differences between products available to be owned personally or via superannuation.

I’ve summarised a few answers to these questions below to help you understand your options for Total and Permanent Disablement insurance (TPD cover.)

What’s the difference between cover owned personally and cover held via super?

Cover held personally can provide access to the ‘own occupation’ definition for TPD cover.

This differs from the TPD cover owned via superannuation, which only offers the ‘any occupation’ definition for TPD. The ‘any occupation’ policy will only pay a benefit should the extent of an injury or illness leave you unable to work in any occupation that you are suited to, via education, experience or training.

For example, if a surgeon were to be involved in an accident that resulted in them having an arm amputated, one could imagine that they would be declared unfit to perform their ‘own occupation’ as a surgeon going forward. However, they may be deemed able to provide consultation to other surgeons regarding patient diagnoses, or even provide assistance on a generic medical help line in a call centre. In this case, they would not satisfy the ‘any occupation’ definition, and no benefit would be paid to them.

The ‘any occupation’ definition doesn’t consider if the occupation the surgeon can now perform is similar in remuneration, hours, activity or difficulty to their prior occupation - the only criteria is that they are able to perform an occupation that their skills and expertise can be applied to.

The ‘own occupation’ definition, only available via a TPD policy owned personally, however, would at the time of claim, consider if the surgeon could continue being a surgeon again, and if they couldn’t, a successful claim could be made.

This is a very important consideration for anyone who has a specialised occupation.

Specialised occupations don’t only apply to those involved in medical professions - any occupation that requires someone to be degree qualified, or involves a certain amount of mobility or applied knowledge, can be considered specialised.

Consider your own occupation and what other roles you skills could be applied to – is an ‘any occupation’ definition suitable for you?

If I do become TPD, how does the insurance benefit get released from super? Do I have to wait until I’m in my sixties to get the proceeds?

Should a TPD claim be accepted for a policy held via superannuation, the claimant will have satisfied not only the insurance company’s definition of total and permanent disablement, but also the superannuation ‘condition of release’ in relation to total and permanent disablement.

A few years ago the definitions for total and permanent disablement were aligned to ensure that if a person satisfied the insurance definition, they would also satisfy the superannuation condition of release so they may access the insurance benefit.

Isn’t it better to have as much of my insurance as possible paid via my super?

Holding your personal insurance via superannuation can help lessen the burden on your cash flow, as the premiums are paid by the balance of your super rather than cash in your bank.

It’s important to consider the amount of those premiums and understand that by paying for your cover via your super balance you’re reducing the amount of your contributions that are accumulating for your retirement.

Your personal circumstances will need to be taken into consideration to determine if you are better off owning your TPD cover personally or via superannuation – speak to your Shadforth Adviser to discuss the options available to you.