What is flexi-linking?
Policyholders now have the option to combine their life insurance policy within super with other types of cover outside of super such as TPD and/or Trauma. This feature is known as flexi-linking.
Just like bundled life insurance policies outside of super, your Life Cover amount will be reduced by the benefit amount of the linked cover outside super when payable in the event of a claim. Should your Life Cover benefit be payable due to death or terminal illness, your linked policies will also end.
An insurance adviser can provide assistance and advice on the best way to structure your linked life insurance policies to best meet your preferred premium payment split between super and out of your own pocket.
How does it work?
A split life insurance policy is one that is held both inside and outside your superannuation fund. It’s a “best of both worlds” approach which can deliver the savings and investment benefits of a superannuation policy, alongside the protection and extra cover offered by life insurance policies outside of superannuation.
1. Life insurance inside vs outside of super
- Insurance inside superannuation lets you use super funds to pay insurance premiums, potentially freeing up more post-tax income. The downsides are that it may erode your super balance, and that such insurance policies are often less comprehensive than the alternatives.
- Insurance outside superannuation refers to standard policies. You can choose the level of cover that suits you, and premiums are paid out of pocket.
2. Flexi-linked policy (Split ownership)
- Combination of both. A flexi-linked policy can do both of the above, potentially freeing up income without necessarily compromising your level of cover.
- Variances in tax benefits. Life insurance policies often let you bundle extras like income protection, TPD cover, income protection and trauma insurance policies, but premiums might not be tax deductible, and benefits might be taxable, depending on whether they’re held inside superannuation or outside.
- Tailor what cover is inside and outside of super. Split life insurance policies can let you choose which of the extras go inside superannuation and which go outside. This gives you detailed control over your own insurance so that you can tailor it for more tax advantages.
Flexi-linked policy in action
Brian wanted the single-most ideal life insurance policy for his needs. He wanted something that he could hold for years which would keep bringing benefits. He wanted tax advantages, lower premiums and comprehensive cover of life, income protection, disability and trauma. In other words, he wanted it all.
For Brian, a split life insurance policy turned out to be the way to go.
- Brian found an insurer that offered “tailored super structuring” and “linked cover” policies, and started seeing what they could do. These were individual policies which could be centrally managed through one insurer, but with individual bundled components at discounted prices that he could put inside or outside superannuation as desired.
- In consultation with his tax agent, Brian decided to put death cover, “any occupation” income protection and TPD inside his superannuation fund, with trauma insurance and “own occupation” income protection outside his super.
Key features of Brian's cover
Some of the main aspects included:
- One insurer, multiple cover. All the bundled options were from the same insurer, netting him a significant discount which would typically not have been possible when splitting policies through super.
- Some policies funded by super. He was claiming tax deductions on and paying for some of the policies with his super fund. In particular, the highly comprehensive “any occupation” income protection (which Brian felt was important, but didn’t want to have draining his regular income) was paid by super.
- Tax optimisation. For additional protection Brian bundled an expensive but highly comprehensive “own occupation” income protection policy outside of super where he could claim more tax deductions on it.
With a flexi-linked life insurance policy Brian now had the insurance trifecta: highly effective protection, value-for-money premiums and numerous tax advantages.
Benefit and drawbacks
Whats the main benefit of a bundled policies?
The flexible linking feature provides you with the opportunity to save up to 15-20% on your premiums and policy fees, while maximising the level and combination of cover that you may require to suit your situation.
What's the main drawback of a bundled policy?
The main disadvantage of a linked policy occurs when you receive a TPD and/or a trauma benefit. Although you are paid out, your total life insurance benefit will be decreased.
The main difference between bundled and standalone policies is the way your total benefit decreases when a claim is paid out.
- Bundled policies. Will payout individually. However, Trauma and TPD benefits will decrease your life insurance benefit as they are paid out.
- Standalone policies. Will payout individually. Trauma and TPD payouts don't take away from your total life insurance benefit.
What is a superannuation rollover?
With the flexible linking option, you can link up your Life Cover policy inside super with other life insurance policies, such as Trauma and TPD Cover, outside super. However, it is important to note that not all super funds that provide life insurance cover with flexible linking benefit for their members. Therefore, you may want to consider a life insurance superannuation rollover.
A superannuation rollover involves transferring the funds in your existing complying superannuation account into a super fund that is held by a life insurance company. You can then use the money in your new super account to meet the premium payments of your Life, Trauma and/or TPD Cover. By rolling over your super into a life insurance provider’s superannuation fund, you can access the flexible linking benefit from the insurer.
Which life insurance policies can I bundle with flexible-linking?
Policies that you can bundle via a flexible linking structure may vary slightly between providers. While the structure of a combined life insurance plan with flexible linking benefit remains the same across providers - Life Cover within super and other life insurance outside of super, it is the type of cover available that you can bundle that may vary from one provider to the other.
As an example, with Asteron Life Complete, you can combine Asteron TPD Cover with Any Occupation definition that is held inside super with Own Occupation TPD outside of super by opting for Split TPD flexible linking feature. You can take advantage of linking features on your income protection policy to gain access to additional options that are not available with cover inside super. It is worth noting that this option is only available with select insurers.
Refer to the following two tables for flexible linking structures example from Asteron and ClearView:
Asteron Life Complete with flexible linking feature
ClearView LifeSolutions with flexible linking feature
Note: ClearView also offers flexible linking option with TPD Cover.
Therefore, it is important to compare this feature across all providers that offer this option to ensure that it matches your requirements. You can easily finding the structure and ownership of life insurance plans with flexible linking feature within the Product Disclosure Statement (PDS).