Do you have super fund insurance? Is it the right cover for you? Now is a great time to think about your financial position as a whole, including your insurance situation.

When first time home buyers come to us to talk about financing for their future home, it’s often the first time they’ve really sat down and considered their financial position. More importantly, it’s often the first time they’ve thought about where they want to be in 10, 20 or 30 years. This isn’t unusual. But because it’s a time when many people are looking to take on their first substantial debt, it’s also the perfect time to consider other financial items that are often overlooked. And this includes risk insurance, such as life, income protection, disability and others.

So, we often find ourselves discussing insurance cover with our clients. And because many, many Australians have simply accepted the basic cover as provided by their super fund (and the fees that apply as well), why it might be worth looking outside your super for insurance cover.

What is super fund insurance?

Many superannuation funds enrol new members into different types of insurance (most popularly life insurance) automatically. And as a young worker, who is perhaps making super payments for the first time, it’s often a non-event. Your new job would simply enrol you in the fund of their choosing and you would receive the life insurance cover as prescribed by that fund.

Of course, you would still be responsible for the fees for that insurance cover. Unfortunately, that means that young members and members with small balances in their super accounts could have those balances eroded by fees for insurance cover that they either don’t realise they have or don’t really need.

New super fund legislation

New legislation, fittingly called Putting Members’ Interests First, is set to come into effect on 1 April 2020 and aims to protect members from just that situation. Under this new legislation super funds will no longer be able to offer automatic insurance to new members who are under 25 years old or have a balance of less than $6,000.

That means members are at less risk of their super balances being eroded by fees for insurance cover that they don’t want or don’t need. But it also means people may be missing out on opportunities to get life insurance cover at great low rates.

Why first time home buyers should also be thinking about insurance

Insurance is more cost effective when you’re young.

The average age of first time home buyers in Australia is 34 and the proportion of younger households (where the homeowners are less than 35 years of age) is 63%. When you’re young, it’s a great time to consider your insurance position. During this time, you can put in place very cost-effective policies that will set you up well for your future. And as a first time home owners you are likely in that age bracket.

You’re already considering your financial position.

Pulling together your financial information in preparation for getting a mortgage is often a daunting process. But once you understand your financial position, it’s also a great time to start to plan for your financial future beyond just securing lending. While we aren’t financial advisers, we do endeavour to offer holistic advice at Stapleton Finance. So, we often advise our clients to consider how their insurance is funded as well.

It’s a good time to focus on building your wealth.

My personal view is that it’s often a good idea to have your risk insurance outside of your super. This is especially true in the early years of building your wealth. This allows your super to grow without the impost of premiums. And having risk insurance outside of your super means you can review it regularly to ensure you’re covered effectively as your situation changes over time.

Speaking with a financial planner

Of course, there are some benefits to having your insurance cover funded through your super as well. It’s easy to pay, for one, and you may have some tax advantages, for another.

To determine the best approach for your specific situation it’s a good idea to speak to a financial planner. A financial planner can assess your financial position as a whole. And they can provide you with customised advice that will help you meet your particular financial goals.

We have a financial planner that I trust implicitly to whom we often refer our first home buyer clients. He provides guidance on risk insurance both in and out of your super. Understanding your position means you’ll be better set up for the future. No matter how you want that to look.

If you’re a first home buyer interested in understanding the best approach for maintaining your insurance cover, get in touch. We can recommend a fantastic financial adviser to help.

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