Insurance through super

Super - cover me

Many super funds arrange life and disability cover for their members. Insurance is arranged by the super fund trustee, acting on behalf of the members of the fund. Having insurance for accidents and illness can provide a sense of security for you and your family.

If you're reviewing your life insurance, a good place to start is to check what cover you get through your super fund so you can compare with other options.

Types of insurance available through super funds

Super funds typically have three types of insurance for members:

  • Death cover (also known as life insurance) - Your beneficiaries receive a benefit if you die
  • Total and permanent disability (TPD) cover - You receive a benefit if you become seriously disabled and are unlikely to ever work again
  • Income protection (IP) cover - You receive an income stream for a specified period if you can't work due to temporary disability or illness

Your employer's default fund must offer a minimum level of life insurance, depending on your age. You may choose to increase, decrease, or cancel your default insurance cover. Life insurance benefits are paid as either a lump sum or an income stream.

Your super fund's product disclosure statement (PDS) usually has details of the insurer and the cover available. You can also get these details by contacting your super fund. Don't be afraid to ask as many questions as you need to. You may consider getting financial advice if you have broader questions about insurance or other financial products that are suitable for you.

Like other insurance policies, you will pay insurance premiums. These are deducted from your super account balance. Many super funds have a default level of cover that provides a small amount of insurance. However, you can choose to increase or decrease your level of cover to meet your needs.

Check your life insurance cover before changing super funds

Before you change super funds, make sure you can get the same death, TPD or income protection cover that you currently have, in your new fund. Some funds will allow you to transfer your current level of cover, ask your new fund if they will do this before you roll your super over. Be particularly careful if you have a pre-existing medical condition or are aged 60 or over. Seek financial advice if you are unsure.

Why insure through super?

There are benefits in getting life insurance through super:

  • It's often cheaper because super funds purchase insurance policies in bulk
  • There may be a tax advantage because the premiums are paid from your super account, not your after-tax income
  • You can get the cover you need for you and your family, even if money is tight
  • It's easy to manage because premiums are automatically deducted
  • Some funds automatically accept you for cover without requiring a health check

Smart tip

Insurance premiums through super still cost money. Consider topping up your super so your nest egg continues to grow over time.

However, there are also some drawbacks with life insurance through super:

  • Limited cover - The types of insurance, and level of cover, may be limited.
  • Not portable - If you move to a different super fund or your employer's super contributions stop, your cover may end without notice.
  • Cost of extra super funds - If you have more than one super fund you may be paying for insurance in each fund, which may be an unnecessary cost.
  • Tax - Tax may be payable on some benefits. Also, there may be tax implications if your super recipient is not a dependant, so consider getting financial advice.
  • Slower to pay - There can be delays in the payment of life insurance benefits as these go to the fund first, who then distribute them 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. Usually benefits are paid to dependents, after taking your wishes into consideration.
  • Ends at around age 65 - Life insurance coverage through super usually ends when you reach a certain age (usually 65 or 70), whereas policies with other providers can cover you for longer.
  • Reduces super balance - The cost of insurance premiums comes out of your super balance, so although it could be cheaper to take out insurance through super, there will be less money for your retirement.

Case study: Paula gets more life cover

Blonde Woman Young Girl Smiling

Paula lives with her partner Sam and their daughter Sarah. Paula is the main income earner while Sam works part time. Paula has life insurance through her super fund but it is not enough to cover the mortgage and support her partner to raise their daughter if she were to become ill or die. While Sam could return to work full time, his income may still not be enough to support the family.

Paula decides she needs some additional life insurance cover, so she compares the type of cover and value of increasing her insurance through super and getting a separate policy.

The key to deciding if you want insurance through your super fund is knowing how much cover you need, understanding whether your super fund will offer the full amount, and comparing the costs and conditions with other providers. Being insured through super is often a cost-effective and easy option, but it is a good idea to shop around. Just remember that if you change funds your insurance cover may stop.


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Last updated: 04 May 2016