Helping South African expats and Australian families navigate financial complexity. I provide practical advice to help you build the life you really want.
A South African’s Guide to Insurance Premiums in Australia
Paying for insurance can work differently in Australia. I look at cover inside and outside super, the trade-offs involved and questions worth asking when moving from South Africa.
In Australia, some insurance premiums can be paid through super rather than from your bank account. That can help with cashflow, but it also reduces the money left for retirement.
The basics: South Africa vs. Australia
In South Africa, we are familiar with terms like life cover, income protection (IP), total and permanent disability (TPD), and trauma (or critical illness, CI) cover. Typically, these insurances are paid directly from our personal funds. However, in Australia, the system is a bit different. Here, you can pay for life, TPD, and IP from your superannuation fund.
Superannuation funds: a unique Australian feature
Australia’s superannuation system and specifically the mandated saving towards retirement is designed to help individuals save for their old days. Superannuation (or “super”) funds can be used to pay for certain types of insurance, but there are rules about what can be included. Super funds no longer offer new trauma insurance policies, although some cover held before July 2014 may continue. See Moneysmart’s explanation of trauma insurance.
The sole purpose test
The sole purpose test mandates that superannuation funds must be maintained solely for providing benefits to members upon their retirement, death, or other specific conditions. Trauma cover does not align with these conditions, as it provides a benefit upon the diagnosis of a specified medical condition rather than retirement or death.
Pros and cons of paying insurance from superannuation
You might wonder if using your retirement fund to pay for insurance is a good idea. It might seem like you’re dipping into future savings to meet current needs, and you’re right—it does feel that way. However, it’s not that simple, as there are both benefits and drawbacks to consider.
Benefits
- Budget management: If you’re young, new to Australia, and saving for a deposit on your first home, you’re likely on a tight budget. Using your superannuation to pay for insurance can free up your cash flow, allowing you to prioritise short-term financial goals without compromising your insurance needs. It’s all about prioritising your goals.
- Compulsory contributions: I’m a big fan of Australia’s superannuation guarantee program. This scheme requires that a percentage of your salary be put towards your retirement. For most expats, these mandatory contributions start with your first pay cheque, helping you build up funds in your super account. You can use these funds to pay your insurance premiums. While this might not always be the best approach, a solid financial plan will help you decide if using some of your future savings for short-term goals is feasible. This is where financial planning and goal prioritisation are crucial, especially for us expats ‘starting over’.
Drawbacks
- Impact on retirement savings: Using your superannuation to pay for insurance reduces the amount of money available for your retirement. This could impact your long-term financial security.
- Tax treatment: In Australia, premiums you personally pay for cover that replaces employment income may be deductible. If a policy also pays a capital benefit, only the income-protection portion is deductible; do not assume the entire premium qualifies. You cannot personally claim premiums paid through your super fund. Check the ATO’s employee expense guidance and your policy details before claiming.
- Visa considerations: Ask the insurer how your visa, work rights, overseas residence and any return to South Africa affect eligibility, cover and claims. The answer depends on the policy, so check the terms before relying on cover during a move.
Practical tips for South African immigrants
- Evaluate your needs: Assess your insurance needs in the context of your financial goals and visa status. Determine which insurances are essential and which can be adjusted or deferred.
- Keep some South African insurance: I often see people wanting to cancel their insurance in South Africa as soon as they board the plane. However, this decision isn’t straightforward for everyone. It’s worth considering keeping some insurance cover in South Africa, especially if there’s a possibility of returning. This ensures continuous cover during any transition. Even with permanent residency in Australia, it’s wise to wait before cancelling all your insurance until you are certain you won’t return to South Africa if something unfortunate happens.
- Consult a professional: Seek advice from a financial adviser familiar with both South African and Australian systems. They can help you navigate the complexities and make informed decisions.
Conclusion
Understanding the differences in insurance premium payments between South Africa and Australia is crucial for South Africans planning to move or who have recently moved to Australia. By leveraging the unique features of the Australian superannuation system and carefully considering your financial situation and visa status, you can make informed decisions that protect both your immediate and long-term interests. Stay informed, seek professional advice, and ensure you have the right cover to secure your financial future in your new home.
For the wider picture, read my guide to your first Australian payslip and Melbourne arrival checklist. Moneysmart also explains the benefits and limits of insurance through super.