Superannuation insurance is a crucial component of Australia's retirement savings system, providing financial protection to you as an individual and your family. However, like any complex financial product, superannuation insurance is often surrounded by a number of myths and misconceptions. In this article, we will debunk five prevalent myths about superannuation insurance and shed light on the facts that individuals need to understand to ensure they have the right product and have protected themselves for the future.
Myth 1 – I only need to worry about superannuation insurance when I am older
One common misconception is that superannuation insurance is primarily designed for older individuals approaching retirement age. In reality, superannuation insurance is relevant for individuals of all ages, especially those in the workforce. Many superannuation funds automatically provide insurance cover to their members, offering protection against unforeseen events such as disability or death. Having insurance in place during your working years from early on ensures your financial security for you and any of your dependents, regardless of age.
Myth 2 – I don't need superannuation insurance if I'm young and healthy
Some people believe that if they are young, healthy, and not currently facing any health issues, there's no need for superannuation insurance or obtaining additional cover. However, the unexpected can happen to anyone at any age. Superannuation insurance is not just about protecting against old age; it also provides coverage in the event of accidents, illnesses, or disabilities. Having insurance early on ensures that individuals and their families are protected during their entire working life and beyond.
Myth 3 – Superannuation insurance is only about a death benefit
While death benefits are a crucial aspect of superannuation insurance, it's not the only coverage provided. Many superannuation funds offer a range of insurance options, including Total and Permanent Disability (TPD) cover, critical illness insurance and Income Protection (IP). TPD cover provides financial support if an individual becomes totally and permanently disabled and is unable to work, critical illness insurance will provide cover to you if you have diagnosed with a critical illness under a relevant policy, while Income Protection insurance offers a regular income stream if you, the insured person is temporarily unable to work due to an illness or an injury. Products are different depending on what institution you insure yourself with, so it is important to read the policy carefully and the associated Product Disclosure Statement (PDS).
Myth 4 – Superannuation insurance is automatically adequate
Some individuals assume that the default insurance cover provided by their superannuation fund is automatically sufficient for their needs. In reality, the default cover may not align with an individual's specific circumstances and your associated financial goals. It's essential for individuals to review their superannuation insurance regularly, considering factors such as changes in your income, your dependents, and any lifestyle changes. Adjusting the coverage to better suit your personal circumstances ensures that the insurance remains relevant and adequate if you need it.
Myth 5 – Superannuation insurance payouts are taxed heavily
There is a common misconception that superannuation insurance payouts are subject to heavy taxation. In Australia, superannuation insurance benefits are generally tax-free when paid to a dependent beneficiary. The tax treatment may vary if the benefit is paid to a non-dependent, but it is essential to understand that the tax implications are often more favourable compared to other forms of income.
Myth 6 – I have multiple accounts that are not consolidated and can only claim from one of them
You can usually claim the lump sum total and permanent disability insurance held with all superannuation funds you were a member at the time of your disablement, the same goes for entitlements to your fund's death benefit payment. However, it is important to note that it always depends on the wording of the policy fine print, and it may be worth considering the timing, or order of any claims you might make, to ensure that you maximise your entitlements.
The above myths are just a few of the misconceptions individuals may have regarding superannuation insurance, so if you are ever in doubt about your policy, whether you have a claim or need any advice, it's important to speak to an experienced lawyer to assist you.
Superannuation insurance is a vital component of financial planning in Australia, providing individuals with peace of mind and financial security for the future. Debunking common myths surrounding superannuation insurance is crucial to ensuring you have the policy right for you and your needs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
