With clients increasingly cash strapped, particularly those in their 40s with large mortgages and school fees, using a linked insurance policy where part of the insurance cover is held inside super and part of it in the client’s personal name, can often be the best option for many clients, explains Verante Financial Planning director Liam Shorte.
Mr Shorte explained that these linked policies involve the client holding basic any occupation TPD cover inside within their super fund, but with a linked own occupation cover outside of super in their personal name.
“The claim will first be assessed under the any occupation definition but if it is not covered it will then be considered under the better own occupation cover outside of super,” Mr Shorte explained.
“The benefit is that the majority of the premium is charged to super and is tax deductible in the fund with only the top up cover paid from outside.”
A number of different insurance providers are now offering this kind of option, he said, as it gives the member or trustee the ability to spread the cost of the insurance across their fund and their personal name while still accessing the best cover available.
“I find that for clients in their 40s with large mortgages and school fees, they really need the best cover rather than just a basic policy as they’ve got a huge exposure but they just don’t have the cash available to do it all outside of super. So this is the best compromise where they can salary sacrifice to pay for the insurance inside super and then just have a little bit outside of super as well,” he said.
Mr Shorte also stressed that SMSF clients should be ensuring that their insurance matches their actual position.
“It may make sense for some clients to have a stepped premium where the level of insurance cover reduces gradually each year in line with the debts they’re paying down,” he said.
