Understanding different payment options for your personal insurance
Whether you’re just starting out with insurance or looking for ways to make premiums a little easier on your wallet, there’s good news: you might not need to pay for your insurance out-of-pocket at all.
When it comes to retail or personal insurance, options are your friend. You can pay directly from your bank account via debit, or take advantage of superannuation, letting your retirement fund do the heavy lifting.
“Convenience, cost-saving, and comprehensive cover – paying through super has its perks.”
Why relying only on super might not be enough
Super-based insurance can sometimes come with limitations. For example, if you change super funds or stop making contributions, your cover might lapse. Additionally, the cover amount provided by super might not fully meet your insurance needs, especially as life circumstances shift. According to Rice Warner, sticking to just the default super cover for the average young family only meets about 15% of their actual life insurance needs.
One big reason people often stick with insurance through their super fund? They don’t have to personally foot the bill. With premiums debited directly from their super balance, it’s a “set-and-forget” way to stay covered. With retail insurance, you can do the same thing! In fact, you can choose to pay through super, via debit, or a combination of both. You have the option to choose what works best for you.
Here’s how both work, so you can see which option best suits your needs and lifestyle.
Option 1: Paying insurance premiums with super
Using your superannuation for insurance payments is as straightforward as it sounds: instead of paying directly, premiums are deducted from your super balance. This method is especially popular because:
No immediate out-of-pocket cost: You keep your daily cash flow unaffected, meaning less of an impact on your day-to-day budgeting.
Tax benefits: Some super contributions receive tax concessions, which can reduce the overall cost of your insurance. For example, certain insurance premiums are tax-deductible when paid via super.
In fact, a report by Super Done Right found that using super for insurance is increasingly common among Australians who prioritise ease and affordability.
“In 2023, 55% of Australians chose to pay their life insurance premiums through their super funds.”
How to set up your life insurance policy through superannuation
Setting up a personal insurance policy through your superannuation fund can be a smooth and tax-effective way to ensure you’re covered without directly impacting your day-to-day cash flow. Here’s a simple step-by-step guide to make it happen:
Step 1: Speak to an adviser
Most super funds require you to work with an adviser to set up a retail insurance policy through superannuation. An adviser can help you navigate the options and suggest policies that match your needs.
Step 2: Complete a Fact-Find Survey
Your adviser will gather essential information about your personal and financial situation through a fact-find survey. This step helps tailor the insurance coverage and protection levels specific to your needs and circumstances.
Step 3: Submit your application to the insurer
Once you and your adviser have settled on the right insurance cover, you’ll complete the application. Most insurers offer easy online application processes or virtual interviews.
Step 4: Underwriting and assessment
The insurer will assess your application, considering any exclusions, loadings, or additional terms based on factors like your health, lifestyle, and job.
Step 5: Review and finalise
Once your application is approved, you’ll decide whether setting up the policy through super suits you. If it does, the premiums will be deducted directly from your super contributions, offering a convenient and tax-effective way to maintain your cover.
Option 2: Paying directly via debit
For some, direct debit is the way to go. This payment method links directly to your bank account and requires you to pay premiums from your own funds each month, quarter, or year. Here’s why this might work for you:
Tailor payment frequency: Paying directly lets you tailor the payment frequency and even select add-ons to your policy without the constraints sometimes seen in super-linked insurance.
Be in charge: Paying through your own bank account keeps you in charge of how much is available for premiums.
According to a recent Insurance Supplementary Report, direct debit also appeals to those who want uninterrupted, transparent access to their insurance policy details.
Which one is right for you?
So, should you stick with debit or go with super? It all depends on your personal financial situation and goals. Here’s a breakdown:
Cash flow matters: If you prefer to keep your take-home pay intact and free of extra costs, super is a great option. It’s ideal if you’re budgeting or simply don’t want the hassle of monthly payments.
Need for flexibility: If you’re after control and want access to unique features, paying directly may offer more flexibility in the benefits you select.
Why does this matter to you in your 20s or 30s?
Younger Aussies often juggle multiple financial goals – from saving for travel and buying a first home to investing and planning for retirement. When asked, Rice Warner noted that millennials and Gen Zs benefit significantly from flexible, cash-efficient payment options for personal insurance.
While super-linked policies might not have all the bells and whistles, they’re typically designed to cover the basics, which can work well in your 20s and 30s. As your needs change, you can reassess and consider a switch to direct payments for tailored options.
“In Australia, 40% of people under 35 are unaware they can use super for insurance payments.”
Making your premium payments work for you
No matter which path you choose – super or debit – make sure it aligns with your financial goals. And if you’re unsure? Consult a financial adviser to weigh your options. The right approach today can offer you peace of mind, knowing you’re covered in a way that fits your life.
Resources
Australian Tax Office (ATO) on Super Contributions: ATO Superannuation
Super Done Right Report: Super Done Right
Insurance Supplementary Report: Productivity Commission