IOOF has observed that more advisers are finding good reasons to write risk on platforms as insurance inside super is often the best solution for clients due to the tax and cashflow benefits.
According to the company, taking insurance cover on the client’s regular super funds, had a number of advantages such as:
- Premiums were deducted automatically from the client’s cash account which reduced the likelihood of an inadvertent policy lapse;
- The integration of insurance cover in a platform would make pension options available, which would not be available as stand-alone super-held policies, and also the death and TPD benefit received might be converted to a pension account; and
- Reporting and administration would be consolidated in one place.
IOOF also noted that there was a range of different types of insurance inside super and different ways to structure these policies and that retail insurance has become more preferable than “one size fits all” group insurance cover.
However, the company stressed that retail insurance inside super offered different ways to structure the cover with varying consequences and that one of the methods included establishing an insurance-only super fund independent of the super fund with the insurer’s trustee owning the policy.
However, this method, according to IOOF insurance specialist Peter Stathis, increased risk of an inadvertent policy lapse.
“With insurance cover held in a different super fund the possibility of a lapse is naturally higher. If a member changes jobs and starts contributing to a new super fund, there’s a real risk the original super fund eventually won’t have the funds to cover partial rollover contributions,” he said.
“Also, there are reasons a super fund can legally refuse to process a rollover, such as if the fund balance falls below $5,000, or if a withdrawal has been made in the prior 12 months and this may cause a policy to lapse with potentially devastating consequences if a claim event happens down the track”.
