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Insurance in super

You probably have some already

As well as superannuation, most super funds also offer their members some important insurance options. They’re designed to give members peace of mind should something unexpected happen.

The three most common types of insurance in superannuation are:

  • Life Insurance which can help provide for your loved ones if you die. Ironically, Life Insurance is also known as Death Insurance.
  • Total & Permanent Disability Insurance (TPD) which can replace your income if you’re injured and can’t ever work again.
  • Income Protection Insurance which can pay you up to 75% of your income if an injury or illness results in you not working for a period of time.

Often, funds will combine life with TPD cover and provide it as a default in your membership, whereas income protection is usually offered as an optional extra.

Why having insurance in super makes sense

Buying life insurance, TPD insurance and income protection insurance through your super fund is often a lot cheaper than if you were to sign up as an individual.

Superannuation funds have enormous buying power and can purchase ‘in bulk’, which means they can generally negotiate better premiums and pass the savings on to members. What’s more, Industry SuperFunds don’t pay commissions to advisers for selling insurance and can therefore pass this saving on as well.

Most super funds will insure you regardless of your current health, so even if you’re in poor health you can generally still receive the automatic cover at the standard insurance rates.

There’s also no fear of forgetting a payment (potentially leaving you without cover) since funds automatically deduct the premium from your super.

Finally, super fund insurance premiums effectively attract a tax deduction for the fund that should then be passed back to you in the form of lower premiums.

If you don’t have enough superannuation you can always add extra to your super to offset the insurance cost.

Tailor your insurance to meet your needs

Like any insurance, it’s important to make sure the insurance you have through your super will cover your needs (and/or those of your family) if misfortune strikes. Similarly, you don’t want to be paying for cover you’re not likely to need. That’s why it’s wise to check your cover and make sure it’s adequate and relevant.

When assessing your cover, you should consider the following points:

  • The level of default cover may not be enough to provide for all of your needs
  • You may need to increase your life cover if you have children or other dependents
  • If you don’t have dependents, then you might want to cancel the life insurance component, but keep your TPD insurance
  • Income protection insurance is a wise choice if you are is self-employed, a contractor or have a mortgage
  • Your level of cover does not automatically update if you get a pay-rise, have children or take out a loan. Whenever your life changes, you should update your insurance.
  • Since premiums are deducted from your account balance, some of your account balance is diverted away from growth and this could impact your final balance at retirement.

Working out your cover

Your most recent superannuation statement should detail the type and extent of any insurance you have with your fund. If you can’t find it or you’re still not sure, just call your fund and they’ll be happy to answer your questions.

Once you’ve worked out your level of insurance cover, check to see if you have any insurance cover elsewhere, and add that into your calculations. You may find that you’re doubling up if two policies cover the same thing. If so, you might want to consider consolidating your insurance – but first, make sure:

  1. You’re allowed to increase the cover of the policy you’re consolidating into
  2. There are no financial penalties for cancelling a policy
  3. You are aware of any rules regarding pre-existing medical conditions

And remember, the amount of cover required differs from person to person and is based on various factors including, your age and your life circumstances, the amount of debt you have, if you have any dependents, how old they are, and of course, how much you’re earning currently.

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