Many Australians have life insurance through their superannuation fund without fully understanding the coverage or its limitations. While having life, total and permanent disability (TPD), and income protection insurance within your super fund can provide peace of mind, it may not always meet your specific needs and could leave you caught short in the event you need to make a claim. Let’s explore what’s typically included in superannuation insurance policies, potential gaps, and the importance of reviewing your coverage to ensure you’re adequately protected.
Life Insurance within Super Funds
Superannuation funds typically offer life cover, TPD insurance, and income protection to members. Life cover provides a lump sum or income stream to your beneficiaries if you pass away or are diagnosed with a terminal illness. TPD insurance offers a benefit if you become permanently disabled and cannot work again, while income protection pays a regular income if you’re temporarily unable to work due to illness or injury. These policies are usually automatic and do not require medical checks, which can be convenient, especially for those in high-risk jobs. However, these policies may not extend beyond certain ages, typically ending at 65 for TPD and 70 for life cover.
Insurance in Inactive or Low-Balance Funds
Government regulations mean that insurance cover on inactive super accounts—those without contributions for 16 months—will be cancelled unless you advise your fund that you wish to retain it, or make a contribution. Low-balance accounts, typically below $6,000, may also lose their insurance unless the account holder specifically requests it. New superannuation members under 25 are also generally not provided with insurance automatically. If you’re in this category, you’ll need to inform your super fund if you wish to keep or add insurance. Understanding these restrictions is crucial, particularly for those who may rely solely on their superannuation for life insurance cover.
Pros and Cons of Life Insurance Through Super
Life Insurance Through Super Pros
The most notable benefit of insurance through super is that premiums are often cheaper because super funds buy policies in bulk. The premiums are deducted directly from your super balance, making payments hassle-free. Additionally, most super funds offer default coverage without requiring health checks, which can be beneficial for individuals with pre-existing conditions or high-risk jobs. Super contributions used to pay for insurance are also taxed at a lower rate, providing a tax-effective way to maintain coverage.
Life Insurance Through Super Cons
Insurance through super funds does have its limitations. The cover is not tailored to your individual needs and often provides less coverage lower than policies purchased outside super. Changing super funds, ceasing contributions, or having an inactive account could result in losing your insurance. Furthermore, the cost of premiums reduces your super balance, which could negatively impact your retirement savings. For those with specific medical conditions or older members, obtaining the required level of cover may be more challenging.
Reviewing Your Coverage
Given the potential limitations of insurance through super, it’s vital to regularly review your policy. Check what type of insurance you have, how much cover it provides, and how much you’re paying in premiums. Be sure to examine any exclusions or loadings—additional charges for higher-risk individuals such as smokers or those with pre-existing conditions. You can find this information through your super fund’s website or by contacting them directly. If you have multiple super accounts, you may be paying for more than one policy, which can erode your retirement savings without offering significant additional benefits.
Conclusion
Life insurance within superannuation funds can be an affordable and accessible option, but it may not provide sufficient coverage for everyone. The default insurance provided by super funds is not always tailored to your circumstances, and it is essential to ensure that your policy meets your personal needs. At Priority, we can assist you with reviewing your insurance — whether through your super fund or a separate provider — ensuring you and your loved ones are fully protected should something unexpected occur. To arrange a time to chat, please reach out to us today on 1300 349 188, or via our website.