However, the biggest argument in favour of using super to fund insurance protection needs may be that it gets around the problem of finding the money to pay the ever-increasing premiums. Sure, this will impact on retirement savings, but it is arguable that protection and security for your family at these key ages should take priority.
THE NEED FOR ADVICE
Back in 1975, most life insurance was sold by life “agents” on a commission basis. Whilst the practices of some agents gave life insurance a bad name, there is no doubt that many families were saved from financial and personal hardship as a result of the breadwinner taking out cover.
With the impending possibility that commissions may be banned on life insurance premiums (as part of the Future of Financial Advice measures), it is even more important that wage earners be encouraged to provide adequate protection for their dependants. The “default cover” provided by super funds is a starting point, but is not going to be adequate in many cases. However, everyone is a member of at least one super fund these days, and the voluntary cover options offered by many funds may be the most convenient and palatable way for a client to get access to affordable protection.
Many superannuation funds report that customer engagement is an ongoing challenge, especially among their younger members. Will fund members be sufficiently engaged to take appropriate action at the necessary time? For example, this might involve an early switch from unitised default cover to a fixed-dollar amount, to ensure future insurability. Or it might involve maintaining cover in more than one fund when changing jobs to retain existing entitlements.
With a continuing trend towards later child rearing and children staying in the family home for longer periods, there is likely to be an ongoing need for both partners in a relationship to have adequate cover late in their working careers. It is quite possible that one partner may be a solo parent still supporting children beyond age 60.
Helping a client assess insurance cover needs and encouraging them to use the facilities available through their super fund may not be the most complex piece of advice a professional planner ever provides, but it could turn out to be the most valuable.
Bill Buttler is a principal of Rice Warner Actuaries – www.ricewarner.com
