If you're finding yourself tangled up in the confusing process of deciding on the type of life insurance cover that fits your needs, relax! Our Insurance Brokers are here to make it simple.
In this article we dive into a topic we get asked about a lot. The advantages and disadvantages of life insurance through your superannuation fund, compared to a retail policy.
Life Insurance Through Your Super
There’s no denying that life insurance through super has its advantages. It’s convenient having premiums automatically deducted from your super balance. Plus, this sometimes ‘default’ insurance usually offers guaranteed acceptance, ideal if you work in a high-risk job. But not all the benefits are that simple...
Superannuation funds can provide up to 3 types of life insurance cover. Death cover , total and permanent disability insurance ( TPD ), and income protection . While over 10 million superannuation accounts have insurance, many Aussies don’t even know what insurance they actually have and how much they're paying for it.
So, the first thing to do is check what insurance you have in your super, before considering a new life insurance policy (outside of your super).
Facts and Myths of Life Insurance in Super Funds
Myth | Fact |
Life Insurance Through Super is Cheaper | Super funds buy insurance from Group insurers, which means you may pay less for insurance Premiums within your super. This is ‘generally true’ for ‘default cover’, but we’re finding any increases in coverage may end up being more expensive than a retail policy. |
No Individual Medical Checks with Super Insurance | Default or automatic cover under a group policy doesn’t require individual medical checks, which is handy if you have health conditions that make it tough to get insurance outside your super. BUT, many policies have pre-existing condition exclusions, and they may ask more questions at claim time. |
There are Tax Benefits with Super Insurance | Premiums in super do have a 15% tax rebate applied, but in the event of a TPD claim, tax may be payable on the amount. Also, if your Life cover beneficiary is a non ‘tax dependant’ then tax may also be payable. |
Disadvantages of Life Insurance Through Super
Super insurance reduces your retirement balance
As premiums are deducted from your super, your retirement fund gets a hit. In the super accumulation phase you want to be growing that balance as much as possible. What’s worse? If you have multiple super funds, you’re likely paying multiple insurance premiums.
Cover can be limited
The default cover may be lower than what you may require. If it’s your only cover, it might not give enough protection for your beneficiaries. It also often ends when you reach 65-70 years or convert your super into a retirement fund.
Loss of cover when you change or stop contributing to your super fund
Switching super funds, maybe because you’ve started a new job, can cancel your life insurance cover. Or, if you leave a super account inactive (no contributions or rollovers) for 16 months, your fund is required to cancel your insurance. You may have options to keep your cover, but you’ll usually need to contact your fund to request it.
Potential payout delays
This is a big one. ASIC has taken multiple industry super funds to court recently over delayed death and disability payments. Your superannuation trustee will need to determine if the condition of release is met and identify the correct beneficiary, which can take time. This depends on whether there is a binding nominated beneficiary and if it’s current.
Features of Retail Life Insurance
Retail life insurance can be tailored to fit your unique needs. Working with life insurance brokers can ensure you get the right coverage at the most cost-effective price. Whether it’s clearing your mortgage, continuing school fee payments and covering household expenses.
Retail policies offer:
- Customisable cover: Tailoring the cover to what you need which could include lump sum or monthly payments.
- Peace of mind: Knowing you have the right amount of life insurance in place offers peace of mind. Calculate how much cover you need based on your individual circumstances and rest easy.
- A broker who works for you: In the event you need to make a claim, our insurance brokers work to ensure you get what you’re entitled to under your policy.
Your Needs, Your Insurance
Whether it’s life insurance through your super or a retail policy, make sure your coverage suits your needs. Our Insurance Broking team is here to help you navigate these options and ensure you’re adequately covered. Remember, life insurance isn’t one-size-fits-all, so let’s tailor it to be just right for you.
Ready to chat about your life insurance options? Reach out to our friendly team of experts today via the form below.
Disclaimer: The content is intended as general information only and should not be considered as advice on any matter and should not be relied upon as such. This has been prepared without taking into account any individual objectives, financial situation or needs. You should therefore consider the appropriateness of the information in regard to these factors before acting or seek advice before making any financial decisions. BlueRock Private Wealth is a corporate authorised representative of BR Advice (AFSL No: 488 655, ABN: 30 612 056 523).
