Most superannuation funds offer life insurance to their members. In fact, without ever having made an election you may find you already have insurance cover in your super fund. Great, but it is still important you take the time to review your cover and make sure you are appropriately insured. There are three types of life insurance cover typically provided to super fund members:
- Death cover (also known as life insurance) - is part of the benefit your beneficiaries receive when you die, either as a lump sum or as an income stream.
- Total and permanent disability (TPD) cover - pays you a benefit if you become seriously disabled and are unlikely to ever work again.
- Income protection (IP) cover - pays you an income stream for a specified period if you can't work due to temporary disability or illness.
There are benefits in getting your life insurance through super:
- It's often cheaper because super funds purchase insurance policies in bulk
- You can use your superannuation to meet premiums which may assist if your budget is tight
- Your premiums may be tax deductible within your super fund, whereas only income protection is generally tax deductible if purchased outside of super
- Some funds automatically accept you for cover without requiring a health check
- You can usually choose the amount you want to be covered for
You need to consider your specific circumstances as to what type and level of cover is right for you and whether your super fund is the appropriate structure. Some key factors to be aware of:
- Limited cover - The types of insurance, and level of cover, may be limited. Cover is not tailored to your circumstances and exclusions may apply. If you want more insurance, you can apply to increase your cover and a medical may be required. If you want a different type of cover, you may need to get this outside super. Check the PDS carefully.
- Not portable - If you change super funds; have an extended absence from your employer; your employer's super contributions stop or your account balance drops below a certain amount, your cover may cease and you could end up with no insurance. Your super fund should notify you before making any changes to your cover, but it is important to get on the front foot when your circumstances change.
- Slower to pay - There can be delays in receiving benefits as the insurer pays the benefit to the fund first, who then distributes it to you or your beneficiaries.
- Who gets paid - If you do not make a binding beneficiary nomination, or your fund does not offer binding nominations, the super trustee will decide who gets your benefits when you die, although your nomination will be taken into consideration.
- Ends at around age 65 - Life insurance coverage through super ends when you reach a certain age (usually 65 or 70). Policies outside of super may cover you for longer.
- Reduces super balance - The cost of insurance premiums are deducted from your super balance, reducing the money available for your retirement.
- Multiple super accounts - If you have more than one super account, you may be paying premiums on multiple insurance policies. You may only be able to claim on one policy and or may just be over insured. You should consider whether its appropriate to cancel your insurance in the additional funds.
- Premiums may increase when you change jobs – you may be receiving a special discount through your employer or industry which is lost when you change employer. Some funds may also default members as smokers or blue-collar workers which could significantly increase premiums. It is important to continually review your insurance to make sure the information is correct and you have the appropriate cover, especially when your circumstances change.