Why Australian Expats Should Prioritise Life, TPD, and Income Protection Insurance

As an Australian expat, managing your finances can feel like a balancing act. While investments, tax planning, and currency management may take up much of your attention, it’s essential not to overlook personal insurance. Life, Total and Permanent Disability (TPD), and Income Protection insurance are crucial for protecting both your financial future and your loved ones from the unexpected.

However, there are specific considerations for expats when it comes to insurance coverage, especially regarding underwritten insurance and cover held through superannuation. Many expats assume their default insurance in super will remain valid after they leave Australia—but this isn’t always the case. This article explains why underwritten insurance offers a better option for expats and how you can hold it either inside or outside of super, providing flexibility without compromising protection.

The Importance of Life, TPD, and Income Protection Insurance for Australian Expats

Regardless of where you are living—whether it’s the UK, Dubai, or Singapore—the risks of death, disability, or illness are always present. Having appropriate expat insurance coverage is essential to ensure that if the worst happens, you and your family can maintain financial stability.

• Life Insurance provides a lump sum payment to your beneficiaries if you pass away. This ensures your family can continue to meet financial commitments, such as mortgage repayments, school fees, and day-to-day expenses.
• TPD Insurance covers you if you are permanently disabled and unable to work. As an expat, medical costs can be higher abroad, so having adequate coverage for long-term care, medical expenses, and lifestyle changes is vital.
• Income Protection Insurance replaces a portion of your income if you’re unable to work due to illness or injury. This is particularly important for expats who may face higher living costs or medical expenses in their country of residence.

The Risks of Relying on Default Insurance in Super

Many Australians hold Life, TPD, and Income Protection insurance by default through their superannuation fund. While convenient, relying solely on this default cover can leave expats exposed to several risks:

1. Default Cover May Become Invalid as a Non-Resident

Many superannuation funds’ default insurance policies are designed for Australian residents. Once you leave Australia and no longer meet the definition of an “ordinary resident,” the policy may no longer be valid. This is a critical risk for expats, as their insurance cover may lapse without them realising it. Some policies specifically exclude coverage for non-residents, meaning that claims made while living overseas may be denied.

2. Inadequate Coverage for Expat Insurance Needs

Default insurance in super often provides a low level of cover that may not be enough to support your family’s financial needs. It typically doesn’t account for the higher costs expats may face abroad, particularly with healthcare and living expenses. TPD policies within super may also have restrictive definitions, making it harder to claim if you’re permanently disabled while living overseas.

3. Insurance Cancellation Due to Inactivity

If your superannuation account becomes inactive (i.e., no contributions for 16 months), your insurance may be automatically cancelled. As many expats stop contributing to their super while working overseas, this is a common issue that can leave you without any cover.

Why Underwritten Insurance is a Better Option for Australian Expats

Rather than relying on default insurance in superannuation, Australian expats should consider underwritten insurance. Underwritten insurance tailors coverage to your specific needs and remains valid while living overseas, offering greater peace of mind.

What is Underwritten Insurance?

Underwritten insurance refers to a policy where the insurer assesses your individual risk factors, such as health, occupation, and lifestyle, before offering coverage. This customises the policy to your specific needs, offering more comprehensive protection than default cover.

Underwritten Insurance in Super vs Outside Super

Underwritten insurance can be held inside or outside your superannuation fund, providing flexibility. Both options have their own benefits, and as an expat, you may choose one or the other—or even a combination of both—depending on your financial situation.

Underwritten Insurance in Super

Holding underwritten insurance within super provides tax advantages and a convenient payment method, especially if you still have an active super fund. Super funds pay premiums from your account, so they don’t affect your personal cash flow, and can use pre-tax contributions to cover premiums.

Pros:

• Superannuation contributions fund premiums, reducing your out-of-pocket expenses.
• You can access tailored, underwritten cover that is more comprehensive than default insurance.
• Potential tax benefits, as premiums paid through super are often tax-deductible to the fund.

Cons:

• Claim payments for TPD or Income Protection within super may face conditions of release. This causes delay in having access to funds compared to policies held outside super.
• Complex tax implications on insurance payouts for dependents, especially if you pass away while living overseas.

Underwritten Insurance Outside of Super

Alternatively, you can hold your underwritten insurance outside of super. This option gives you more control and flexibility, especially when it comes to claims. Policies held outside super typically pay claims directly to you or your nominated beneficiaries, without requiring you to meet superannuation conditions of release.

Pros:

• More flexible access to funds in the event of a claim, with no reliance on super’s conditions of release.
• Coverage remains valid regardless of your residency status, provided you disclose your situation to the insurer upfront.
• Greater choice of policy terms and conditions, including a wider range of definitions for TPD and income protection claims.

Cons:

• Premiums need to be paid from your personal funds, which can impact your cash flow.
• You won’t benefit from the potential tax deductions on premiums that super provides.

Why You Should Review Your Australian Expat Insurance Coverage Now

As an Australian expat, it’s essential to ensure that you have the right level of insurance in place. Relying on default insurance within your superannuation may leave you underinsured, or worse, without any valid cover at all. Taking out underwritten insurance, whether inside or outside of super, protects you and your family no matter where you live.

Here’s what you should do next:

1. Check with Your Superannuation Fund
   • If you hold insurance through your super, contact your fund to confirm whether your cover remains valid as a non-resident. Understand any potential exclusions or limitations that may apply to expats.
2. Consider Underwritten Insurance
   • Speak to a financial adviser about obtaining underwritten life, TPD, and income protection insurance. They can help you determine whether it’s better to hold your policy within or outside super, based on your financial and tax circumstances.
3. Review Regularly
   • As your residency status, family situation, or employment changes, it’s crucial to review your insurance cover regularly. This will help you ensure that your policy continues to meet your needs.

Final Thoughts on Australian Expat Insurance

Life, TPD, and income protection insurance are critical components of financial security for Australian expats. While default cover within superannuation may seem like an easy solution, it often falls short, especially if you’re no longer an Australian resident. Opting for underwritten insurance—whether held inside or outside of super—provides the tailored protection you need to safeguard your financial future. Take the time to review your insurance today, and make sure you’re properly covered no matter where life takes you.

To learn more, check out Atlas Wealth Groups’ podcast: Expat Chat