Thursday, 23 May 2019
BREAKING NEWS

Affordable life insurance with flexi-linking – ifa

To ease the cost of life insurance, some clients hold their policy within super, so they can pay for the premiums with pre-tax dollars or with accumulated super. However, there are restrictions on the type of cover that can be held within super. Also, when life insurance is held within super, some product features cannot be taken out.

For clients who want to ease their cash flow, but also have comprehensive life insurance cover, they could consider flexible linking or super-linking their insurance cover. Flexi-linking or super-linking allows policies to be split across the superannuation and non-superannuation environments. 

Price transparency and choice

When insurance is held in a flexi-linked or super-linked policy, clients may prefer to have different premium frequencies. This can make it easier for clients to manage their cash flow as well as reduce the administration where premiums are paid into super with rollovers. For example, they may wish to pay monthly premiums for the cost of insurance held outside super and pay annual premiums for the cost of insurance held inside super. 

Some insurers’ quoting systems have the capability to show how the monthly or annual payments will be split between insurance that is held within super, and insurance held outside super. For advisers, being able to see the breakdown of the split payments on a computer screen, while assisting a client with their application for a policy, means greater convenience and simplicity. For clients, the information makes pricing transparent, and can also help them understand how flexi or super-linking works in practice.

Example

Jane has a flexi-linked income protection (IP) policy with term life, total permanent disability (TPD) (any occupation) and trauma/living benefit. The term life cover and TPD (any occupation) are held within super, and linked to the trauma/living benefit that is held outside super.

There are two premiums payable. The cover held inside super costs $1,148 per annum while the cover held outside super costs $1,412 per annum.

To make things easier, Jane chooses an annual premium frequency for the insurance inside super, as it will be funded via a rollover from another super fund. She chooses to pay monthly premiums for the cover held outside super, as this makes it easier for her to manage her cash flow.   

Flexi-linking

Flexi-linking builds on the traditional concept of rider policies, but allows the rider to be held outside super. For example, a living/trauma policy could be owned outside super, but linked to a term life policy inside super. This is one of a number of ways flexible linked policies can be structured. The diagram below illustrates other possible arrangements that could be set up using flexi-linking.