What you need to know about insurance via superannuation

We don’t like to think about our own deaths. But we don’t know what tomorrow holds, and life insurance is a must if you have a family, a lot of debt, or a lot of people who count on you. All of us would also have total and permanent disability (TPD) insurance, income protection insurance, and trauma (or critical sickness) insurance if everything went well.

The problem is that all of this cover costs a lot. The good news is that getting insurance through your super fund can be easy and not cost much. A lot of people in a fund buy insurance together through a fund. This means that the premiums may be cheaper than if you got the same coverage outside of super. What you have to protect yourself is very important.

About half of Australians who work know they have insurance through their super. The trouble is that not many people check to see if the cover is right for them or think about whether it’s enough.

If something bad happens, this “she’ll be right” attitude could leave you or your family with no money. Spend some time learning about what your super covers and how much it covers.

What does basic cover come with?

Most super funds offer “default cover,” which means that unless you choose not to be, you are automatically covered. Most of the time, basic cover will include:

There is something called Total and Permanent Disability (TPD) cover that will pay you if you get sick or hurt and can’t work again.

Life insurance, also called “death cover,” is meant to help your family or other people you choose after you die.

But what you’re covered for can be different between funds. Income protection cover, which is also called pay continuation cover, is part of some basic default insurance plans. This saves you if you get sick or hurt and can’t work for a short time. With some funds, members may have to choose to have their income protected and pay an extra fee.

Be safe and find out for sure. You can easily check the insurance in your super by calling your fund. They can tell you who your insurance company is, what kind of insurance you have, and how much you are covered for.

There are also apps for many super funds that let you check your account and see your cover.

Were you not covered enough?

Even though your fund can tell you how much coverage you have, it’s up to you to decide if it’s enough. One big problem with default cover is that it doesn’t take your specific needs into account. If fund members need to make a claim, they may not get enough money.

Many Australians don’t have as much insurance through their superannuation as they need. This was proven by the Underinsurance in Australia 2020 report from Rice Warner, which is now part of Deloitte. Young families may feel this gap the most.

As a general rule, Rice Warner found that a family with parents aged 30 needs basic life insurance worth $561,000 and TPD cover of $874,000 for each parent. The Australian Securities and Investments Commission looked at the minimum cover for 20 different MySuper products and found that for a 30-year-old, the total payout for life cover and TPD was only $420,515.

Also Read: Reasons why having life insurance is beneficial to your financial health

Your cover should show what you need.

Please keep in mind that the amount of default cover in your fund changes as you work. Life insurance can be at its best at age 40 and start to decline after that. If you had kids when you were young, this might be enough, but if you didn’t have kids until your 30s or 40s, it probably won’t be enough.

Make sure your coverage meets your wants. Think about where you are in life and what costs you need to pay for.

That’s all you might have to pay if you’re young. When you get a little older, you might want to think about how much it will cost to send your kids to school.
Your wants will change again if you’ve had kids but they’ve moved out and you don’t have a mortgage anymore.

Getting rid of the doubt

There are a number of tools that can help you figure out how much to cover. Check out the life insurance tool on Canstar or go to the website of your super fund. The website will probably have an online calculator that you can use to figure out what amount of coverage is best for you.

How to make your cover bigger

You can change the amount of insurance you have through extra. You can be sure that you will only ever pay for the coverage you need.

In order to get more life insurance through your super, you may have to fill out a medical form or get a medical checkup. It might be a bother, and the amount of extra money you have to pay will rely on things like your age and health.

Even so, there are times when it makes sense to improve your coverage through your fund instead of getting insurance on your own. The payments are taken out of your super account immediately, and this way of paying may save you money on taxes. To give you an idea, 15% of your pre-tax super contributions are taxed. This is probably going to be less than your top tax rate, so super can be a cheap way to raise your pay.

Don’t let this affect your retirement savings.

One bad thing about getting more coverage through your super is that it can affect your long-term savings for retirement. According to the Productivity Commission, default cover rates can be as low as $300 a year or as high as $2,000 a year.

This is money that is taken directly out of your superannuation. If you work all your life, it could lower your end balance when you retire by up to 14%. That’s not just because the rates are too expensive. You also miss out on the returns that the premiums would have made over time if they had stayed in super.

Call your fund to find out what it covers and if you need more protection. Also, find out how much the extra protection would cost and how it might affect your super balance. This can help you find the best mix between getting the insurance you need and letting your nest egg grow as little as possible.

Do you have any coverage at all?

You shouldn’t just think that your super fund will cover you. There are three scenarios in which you might not have any insurance.

Are you younger than 25? Funds can’t take out insurance payments from new members younger than 25 unless they choose to. If your job is very dangerous, you might be able to get away with it. Some funds will still cover you if you work in a dangerous job, but you can choose to stop the coverage if you need to.

Your extra is less than $6,000 or not being used: No matter how old you are, insurance payments can’t be taken out of super accounts that have less than $6,000 in them or haven’t had any contributions in at least 16 months. If that sounds like you, you should get in touch with your fund if you want to keep your coverage.

You don’t have enough super to cover your premiums: People in Australia who took money out of their superannuation through the COVID-19 early release plan might not have enough money left over to pay their insurance premiums. To find out, call your fund.

Also Read:Best cheap home insurance Sydney 2024

Check to see if you’re adding up.

People who work for a company have more than one super account. Having more than one super amount can lead to what the Productivity Commission calls “zombie insurance,” which means paying twice as much for insurance. This is coverage, like income protection, that you can usually only get from one insurance. You might be paying twice as much for insurance plans that you can’t even use.

Check to see if you have any lost or unused super savings and get them back. MyGov or the service your fund offers to help people find lost super can be used to do this.

Put the money from all of your different funds into one account if you have more than one. But be careful. Your insurance doesn’t go with you when you die and leave a fund. For people who are over 60 or already have a problem like heart disease or high blood pressure, it may be hard to get coverage when they switch to a new fund. Before you bail out of an old fund that has cover, talk to your new fund.

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