Life insurance through superannuation

The insurance options available to you as a super fund member will depend on your fund. However, these are some typical insurance products offered through superannuation:

• Term life insurance. Sometimes called death cover, a term life insurance policy pays a lump sum to your dependants or nominated beneficiary if you pass away or are diagnosed with a terminal illness.
• TPD insurance. Total and permanent disability (TPD) insurance pays a lump sum benefit if you’re seriously disabled and unlikely to work again. Depending on your policy, TPD covers you for your own or any occupation; this means you might not receive a benefit if you’re able to work again in a different occupation. Policies that cover you for your own occupation are rarely available through your super fund.
• Income protection cover. This is a type of insurance that insures part of your income if you’re unable to work due to sickness or injury. This insurance product typically pays out a monthly benefit equal to a percentage of your income prior to being disabled.

For the full details of your fund’s policies and their inclusions and exclusions, refer to the relevant Product Disclosure Statement (PDS). To decide which product best meets your insurance needs, consider getting financial advice from a qualified financial adviser.

A suitable type of cover for you will ultimately come down to your personal circumstances and priorities. However, by comparing a number of options side-by-side, you can make a more informed decision on a life insurance policy for you and your loved ones. Our life insurance calculator, can help you with your decision on how much cover you consider you may need.

There are a few reasons why people consider taking out life insurance through their super fund:

• Easier coverage: Taking out life insurance through superannuation may be a more straightforward process than going through a life insurance company; in fact, some funds automatically provide a life insurance policy upon sign up. This is referred to as default insurance. Some life insurance companies may require you to complete a health check before they insure you, this is not often a requirement for the default cover available through super. If you’re under 25  or have a super balance under $6,000, you won’t be automatically covered, although you might be able to ‘opt in’ to the insurance by contacting your super fund.¹
• Preserve disposable income: Because your premiums are funded through your superannuation fund, this allows full access to your take-home pay. This means your day-to-day funds won’t be affected. However, premiums paid out of your super fund, of course, reduce your super balance.

While there are benefits to taking out life insurance through super, there are also a few disadvantages worth considering:

• Lower level of cover. Life insurance through superannuation may have a lower maximum benefit amount available. Depending on the amount of cover needed, a superannuation life insurance policy may not have the level of cover required. You can use our free life insurance calculator to get an idea of how much cover you might need and compare that to the cover offered by your super fund.
• Less flexibility. With a policy outside of super, directly with a life insurance provider, you may have greater control over how your cover is structured and access to optional extras that you can add to your policy to expand your coverage. This could include child cover, needlestick cover for medical professionals or critical illness cover.
• Insurance claims may take longer. When you make a claim through your super fund, you or your loved ones will need to wait until the insurer finalises their assessment and sends the insurance payout into your super account. Once the money is paid into your super account, you may need to wait again for the super trustee to decide when and how the proceeds from the insurance payout will be distributed to your beneficiaries.
• Reduces your retirement savings. Because life insurance premiums are taken from your super account when you’re insured through superannuation, it will reduce the amount you have saved for retirement. Subsequently, you’ll also be lowering the amount your super fund can invest on your behalf, reducing the compounding returns your super fund provides. If, for any reason, you’re no longer making super contributions, your account balance may decrease.
• Insurance is generally not portable. Therefore, if you move super funds, you may not be able to take the insurance with you and you’ll need to apply for a new policy.