Funding your insurance through superannuation. What you need to know.

Thursday, November 05, 2020

Many people are unaware that most super funds automatically provide you with insurance as part of their policy. In fact, more than 70% of Australian’s with life insurance hold it through their super but typically, the cover is only for $100,000-$200,000 for many of Australia’s larger super funds.

The idea is simple: it is an added benefit you can take advantage of that will cover you in times of need. The cost comes out of your super account balance, which means you’re paying for it, but it doesn’t immediately impact your cash flow as the premiums come from your superannuation and not your day to day bank accounts.

How Does It Work?

As mentioned, your insurance premiums are deducted from the balance in your super account. This has many advantages. Firstly, it won’t affect your take-home pay, which means you don’t have to worry about budgeting it into your monthly expenses. You also save with tax, as super is generally taxed at a lower rate, saving you even more in the process. However, the amount of money in your super account will be less, so it’s important to factor this in.

In the past, simply signing up for a super account was enough to receive automatic insurance. However, on 1 April 2020, the laws around this changed. You now have to meet a certain set of criteria in order to automatically receive cover. The idea is to protect those from paying for insurance they don’t want. This criteria is:

  • At least 25 years old.
  • Super account balance has to be over $6,000.
  • If the account is inactive. i.e. it hasn’t received a contribution or rollover for 16 months.

If you don’t meet the criteria, then you need to contact your super provider to let them know you want to receive the insurance. You still have the opportunity to opt-out, even if you do meet these criteria. The choice to take out super insurance is a very personal one, which will often it will depend on your life circumstances.

Types of Cover

There are three common types of insurance that normally comes from your super account. These are:

  • Life cover: If you die unexpectedly, it leaves your dependants without your paycheque coming in. You need to consider whether, without it, they would be able to get by and pay for the mortgage/rent, and other costs. Super insurance can help provide the financial certainty your family needs if you die unexpectedly. It also covers terminal illness.
  • TPD insurance: if you become seriously disabled and are no longer able to work in an occupation suited to your skills (by training, qualification or experience), this insurance will protect you and your family paying out a lump sum.
  • Income protection insurance: also known as salary continuance cover. If you are unable to work due to an illness or injury, this insurance pays you a regular income for a set period of time. Generally, income protection insurance will replace part of your actual income (generally 75%).

It is worth considering each of these scenarios and how you and your family would manage without any insurance to fall back on if tragedy struck. This will help you determine whether or not super insurance is right for you. When it comes to insurance, many people focus on life insurance and what will happen in the event of their death. It is also important to consider what happens if you can’t work due to serious injury or illness. Income protection insurance offers you that financial safety net. For example, if you had a serious car accident, and couldn’t work for six months, you'd get regular payments from your insurer – meaning you could focus on getting better without falling behind on bills. For a monthly payment – usually, around 2-3% of your salary – income protection insurance gives you peace of mind if you become too sick or injured to work. 

Advantages of Insurance through Super

What exact advantages come with purchasing super through your insurance?

  1. Easy: if you meet the criteria, it will be set up automatically, and payments will be made without your input.
  2. Increased cover: you have the option to increase the cover to make sure it covers exactly what you need.
  3. Tax-effective: super is taxed at a lower amount than your income, making it a cost-effective option for you.

Disadvantages of Insurance through Super

While insuring through Super does have it’s benefits, it also has its disadvantages.

  1. The cover may be inadequate: as mentioned earlier the standard coverage is usually for around $100,000-$200,000. This level of coverage may be insufficient for your needs. You need to consider the debts you currently hold (mortgage, school fees etc) and consider if your cover will provide for your family for the future.
  2. Trauma Insurance is generally not available in super funds: Trauma insurance provides coverage for unexpected illness or injury and helps cover immediate costs of financial needs and medical expenses.  Many super funds stopped offering this coverage from July 2014 so you would need to check your coverage.
  3. Cover can end: As mentioned, coverage can end if your super account doesn’t receive a contribution for 16 months. During this time you may have changed super funds and expected coverage for your old policy to continue.

How Much Super Insurance Do You Need?

Knowing the exact circumstances your super insurance will help you under, you can gage a better idea of how much super you need. Your best option is to discuss your personal situation with a Life Risk specialist from IMFG who are experienced in reviewing your circumstances and providing a recommendation.

Some things you may want to consider include:

  • The amount you would need to cover your current lifestyle if you were unable to work for an extended period or permanently.
  • Whether you or your family could rely on other financial resources if you were unable to work or died.
  • Any debts you have such as a mortgage.

As your life changes, so will your insurance needs. It’s important to review your super insurance regularly and make sure you are covered for what you need.

Deciding whether or not super insurance is beneficial for your circumstances comes down to your personal situation and what’s right for you. A financial advisory firm such as IMFG can help in making this decision. They will assess your individual situation and advise which types of policies will work best for you.



Identity McIntyre Pty Ltd and its specialist financial advisers Angus Dockrill, Scott Douglas, Dan Blatch, Lisette Walsh, Vince Dore, Sangram Rana, John Foley and Matthew Bull are authorised representatives of IMFG Pty Limited, Australian Financial Services Licensee number 527657 Registered Office at: Level 8, 171 Clarence Street, Sydney NSW 2000. These representatives are trading as IMFG.

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