It’s the time of year when people will be receiving their annual statement from their superannuation fund.
While most people will review their super fund performance, few are likely to check what insurance they hold through their super fund.
Speaking on ABC Melbourne Drive radio recently, Jane Eccleston, ASIC’s Senior Executive Leader of Superannuation, said many Australians are not even aware they hold insurance through their super fund.
‘Many Australians have insurance through their superannuation - almost 10 million superannuation accounts have insurance’, Eccleston says.
‘While there are benefits in having insurance in your super, it’s worth remembering that you ARE paying for it from your super account and it’s reducing your super balance. And if you have multiple super funds, you’re likely paying multiple insurance premiums.
‘It all comes down to your personal circumstances and preferences. We encourage listeners to check if they’ve got insurance with their super fund and what they’re covered for.
A good starting point is to have a look at the information on the annual statement from your super fund. You can also call your fund if you have questions about your insurance’, Eccleston says.
Types of life insurance in super
Most super funds automatically provide:
- life cover (which pays a lump sum if you die) and
- total and permanent disability (TPD) insurance— which pays a lump sum if you become totally and permanently disabled because of illness or injury.
Some super funds will also automatically provide income protection insurance – which pays some of your income if you can’t work for an extended period of time due to illness or injury.
‘Most super funds offer default insurance, which means it is not tailored to any member’s particular circumstances.
‘It’s worth taking the time to understand what cover you may need in light of your personal situation and responsibilities, for example, whether you have dependents or a mortgage or other debts. ASIC’s Moneysmart’s life insurance needs calculator can help work out if you need life cover and how much you might need’, Eccleston says.
You can choose to opt out of insurance cover or change your cover, although you may need to go through medical checks if increasing your cover.
Pros and cons of life insurance through super
- Premiums are often cheaper than outside of super
- You are automatically covered so you don’t have to think about it and premiums are deducted from your super balance.
- There are usually no health checks under a default level of cover
- It can be tax effective if your marginal tax rate is greater than 15%.
- The amount of cover you can get in super is often lower than the cover you can get outside super.
- If you change super funds, your contributions stop or your super account becomes inactive your cover may end (unless you tell your fund you want to keep it).
- Insurance premiums are deducted from your super balance. This reduces your savings for retirement.
When insurance through super is not automatic
- Changes to the law mean insurance is no longer automatically provided to new super fund members aged under 25 unless the member works in a dangerous job.
- Similarly, insurance is no longer automatically provided to new super fund members with balances under $6,000.
However, you can opt-in to receive insurance if you wish by contacting your super fund.
Checking your insurance through super
To find out what insurance you have in your super, and who the insurer is, you can:
- call your super fund
- access your super account online
- check your super fund's annual statement and the Product Disclosure Statement (PDS)
- go to your MyGov
Visit ASIC’s Moneysmart for more information on insurance through super.