Alyssa Lane
Life insurance is not compulsory with superannuation, but it is a good idea to check if you have it. Many Australians are not aware that they have insurance through their super fund. If you are with an Industry SuperFund, you likely have some level of death/life cover already. Most super funds include death/life cover as an automatic part of their regular superannuation products for members over 25. These are often set at a default rate, so it is a good idea to check if you have enough cover, or if you need it at all.
| Characteristics | Values |
|---|---|
| Life insurance through super | Death cover (also known as life insurance) can help ease financial stress by paying a lump sum to your beneficiaries if you die. |
| Who is covered? | Most super funds automatically provide cover for their members. |
| Opting out | You can opt out of insurance cover or change your cover. |
| Age requirement | If you are under 25, you won't be automatically covered by insurance unless you opt-in or work in a dangerous job. |
| Super account balance requirement | If your super account balance is less than $6,000, you won't be automatically covered by insurance. |
| Cost | The cost of insurance depends on factors such as the amount of cover, your personal situation, and the way your super fund calculates its premiums. Premiums tend to increase with age. |
| Tax implications | Premiums paid for insurance through super are taxed at 15%. This may be a tax-effective strategy if your marginal tax rate is greater than 15%. |
| Payment upon death | The waiting period for payment to beneficiaries is usually around one to two months for a straightforward claim. |
| Additional benefits | Some super funds bundle death cover with TPD (Total and Permanent Disability) and income protection insurance. |
What You'll Learn
What is life insurance?
Life insurance is a legally binding contract between an insurance company and a policyholder. In exchange for a premium, the life insurance company agrees to pay a sum of money to one or more named beneficiaries upon the death of the policyholder. The purpose of life insurance is to help provide financial security to your loved ones upon your death.
Life insurance policies fall into two categories: term and permanent. A term life insurance policy gives you coverage for a set number of years. You can select the term period you want, such as 10, 20, or 30 years. If you die during the coverage period, your policy will pay benefits to your named beneficiaries. If you live past the selected period, the policy will simply expire.
Permanent life insurance, on the other hand, does not expire and will cover you for your whole life. Permanent life insurance policies remain active until you die, unless you stop paying your premiums or surrender the policy. The three most common types of permanent life insurance policies are whole, universal, and variable.
Whole life insurance has no expiration date, and a portion of the premiums you pay into your policy builds cash value over time. Some insurance companies offer small whole life policies, often referred to as burial insurance, which generally come with a death benefit ranging from $5,000 to $25,000.
Universal life insurance provides lifetime coverage and can also build cash value over time. It offers flexibility when it comes to making payments. For example, if you have enough cash value in your policy, you can use that money to skip a premium payment.
Variable life insurance is another type of permanent life insurance that can build cash value. It differs from universal and whole life insurance in that it has the potential to increase the value of certain subaccounts within the policy, offering even greater growth potential over time.
Whether you choose term or whole life insurance depends on your needs and budget. Term life insurance is often more affordable for people who need coverage but have a limited budget. Permanent policies may be preferable for those willing to pay more for a lifetime of coverage and access to cash value.
Life insurance is not compulsory with superannuation. The decision to insure within or outside a super fund, or a mix of both, depends on your personal needs. It is important to review your insurance needs every now and then, as each life stage and major event—such as marriage, childbirth, mortgage, or pay rise—brings different responsibilities.
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What are the benefits of life insurance in super?
Life insurance is not compulsory with superannuation in Australia. However, most super funds offer life, total and permanent disability (TPD), and income protection insurance for their members.
Cheaper premiums
The super fund buys insurance policies in bulk, which often makes the premiums cheaper.
Easy to pay
Insurance premiums are automatically deducted from your super balance, so you don't have to worry about making payments from your own pocket.
Fewer health checks
Most super funds will accept you for a default level of cover without health checks, which can be useful if you have health conditions that make it difficult to get insurance outside of your super.
Increased cover
You can usually increase the amount of cover you have above the default level. However, you'll generally have to answer questions about your medical history and undergo a medical check.
Tax-effective payments
Your employer's super contributions and salary sacrifice contributions are taxed at 15%, which is lower than the marginal tax rate for most people. This can make paying for insurance through super a tax-effective strategy.
Peace of mind
Life insurance can help ease financial stress on your loved ones in the event of your death. It can also provide a financial safety net if you become ill, injured, or unable to work.
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How do I know what insurance I have in my super?
To know what insurance you have in your super, you can take the following steps:
- Call your super fund: You can contact your super fund and ask about the insurance coverage included in your super. They will be able to provide you with specific details about your plan and answer any questions you may have.
- Access your super account online: If you have online access to your super account, you can log in and review the details of your insurance coverage. This may include information about the type of insurance, the amount of cover, and the cost of premiums.
- Check your super fund's annual statement and Product Disclosure Statement (PDS): Your super fund's annual statement and PDS will provide information about your insurance coverage. The PDS will explain who the insurer is, the details of the cover available, and the conditions for making a claim.
It is important to note that if you have multiple super accounts, you may have insurance coverage through each of them. Therefore, you should review all your super accounts to understand your total insurance coverage.
Additionally, it is worth mentioning that the type and level of insurance coverage provided through your super can vary depending on the super fund and your specific plan. Most super funds typically offer life insurance (also known as death cover), total and permanent disability (TPD) insurance, and income protection insurance. However, it is always a good idea to review your coverage regularly to ensure it meets your needs.
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How do I change my insurance cover?
Life insurance is not compulsory with superannuation. However, most super funds offer life, total and permanent disability (TPD) and income protection insurance for their members. If you are with an Industry SuperFund, then it is likely that you also have some level of death/life cover already.
You can change your insurance cover at any time, and there are several reasons why you might want to do this. For example, you might want to increase your cover if you don't have enough insurance, or if a life event such as getting married or having a child means you need more insurance. On the other hand, you might decide to reduce your cover if you realise you have more than you need, or if your life changes and so do your insurance needs.
To change your insurance cover, you can log in to your Member Online account and make the changes there. Alternatively, you can fill out a form and send it back to your super fund, or call them to discuss your options. If you want to cancel your insurance, you will need to provide instructions in writing to avoid any disputes in the future.
It is important to note that if you cancel your cover, you or your beneficiaries won't be able to make an insurance claim if something happens after the cancellation. You might also find it difficult to get cover later, as you will need to reapply and provide detailed health information for the insurer to consider.
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What happens if I have multiple super funds?
Having multiple super accounts is not uncommon, as around 4 million Australians also have more than one. You are allowed to hold more than one super account, and this can have its benefits. For instance, you might want to keep multiple insurance covers, increase your variety of investment options, or retain your defined benefit entitlement if your super is in a defined-benefit fund.
However, there are some disadvantages to having multiple super accounts. Here are some things to consider if you have multiple super funds:
Increased fees and charges
Most super funds charge a variety of fees related to your super account. If you have more than one super account, you are likely paying multiple fees. Super funds often provide automatic default insurance cover such as life insurance (also called death cover), total and permanent disability insurance (TPD), and income protection insurance if you meet certain eligibility criteria. Therefore, you may be paying multiple premiums for cover that you may not need or be eligible to claim.
Complications in paperwork and administration
Consolidating your super into one account can make it easier to manage your personal details. Keeping your address, email, name changes, and nominated beneficiary up to date reduces the risk of losing your super. There will also be less paperwork in terms of annual statements and fund reports.
Potential for lower retirement savings
Having your super spread across multiple accounts can make it harder to track the growth of your money or make good investment choices. This is in addition to paying multiple fees and insurance premiums, which can leave you with lower retirement savings.
How multiple accounts could cost you
In simple terms, you are probably losing money by having more than one account. For example, if you pay a $100 fee each year on a second account from age 27 to 67, you could miss out on up to $25,000 on your balance at retirement, depending on investment returns. If you add insurance premiums to a second account over the same period, you could miss out on a further $100,000 on your balance in retirement, depending on investment returns.
Benefits of consolidating your super accounts
Consolidating your super accounts can help you keep track of your super and reduce paperwork. It can also simplify your fees and allow you to better keep track of your super to make the most of it for your future. However, before consolidating your super accounts, consider if the timing is right and if you will lose access to benefits such as insurance or pension options, or if there are any fee or tax implications.
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Frequently asked questions
Life insurance is a type of financial protection for your loved ones in the event of your death. It is also known as death cover.
It depends on your age, occupation, and the balance of your super account. If you are over 25, work in a dangerous job, and have a balance of at least $6,000 in your super account, you likely have some level of life insurance included automatically.
You can check with your super fund by calling them, accessing your account online, or reviewing your annual statement and Product Disclosure Statement (PDS).
Yes, you can opt out of insurance cover or adjust it to meet your needs. However, if you are increasing your cover, you may need to go through medical checks.
Some benefits include: automatic coverage, premiums deducted from your super balance (no out-of-pocket payments), and potentially lower taxes if your marginal tax rate is greater than 15%.
