Confused by what the ‘Superlink’ or ‘Flexilink’ style of insurance means?
This style of TPD insurance refers to an ownership structure that was created to provide individuals with two main advantages. That is, to enable individuals to access the comprehensive cover found in “own occupation” TPD insurance, whilst funding the majority of the premium cost from superannuation for taxation and cash flow advantages.
Why was this structure created/required?
Over the past few years superannuation funds have disallowed the placement of “own occupation” TPD cover within the superannuation environment. Whilst some older Self Managed Superannuation Funds, for example, may hold “own occupation” TPD insurance wholly in the super fund, this has since been disallowed. Due to this, any new entrants to “own occupation” TPD coverage were required to fund the premiums for this insurance personally from after tax dollars. The market of retail insurers saw this opportunity to create a solution for this issue and created a “split” TPD product which had the definition advantage of “own occupation” TPD coverage, but funded 2/3rds of the total TPD premium from superannuation.
How does this affect the claims process?
The policy is effectively “split” into a superannuation component and non-superannuation component. In the event of a claim, the insured is first assessed under the “any” occupation definition. If they meet this definition the benefit is paid out via superannuation. If the insured does not meet the “any” definition, they are then assessed under the “own” definition. If they meet this definition the benefit is paid to them directly under the non-super component of the policy.
One thing that must be considered in structuring your TPD benefits appropriately are any tax considerations. TPD benefits are typically tax exempt when the policy is personally funded (self owned) for personal protection purposes. However, if the TPD benefit is funded via superannuation tax may apply and therefore it may be sensible to gross up the sum insured for the potential tax liability.Please note, this information has been prepared by Australian Financial Risk Management Pty Ltd (AFRM) ABN 21 001 696 868. AFRM hold an Australian Financial Services License (AFSL) 237186. The information is for general purposes only and has been prepared without taking account of your objectives, financial situation or needs. AFRM recommends that you seek professional advice before acting on any information contained herein.