Did you know you may be able to get low-cost insurance through your super fund? In fact, default funds are obliged by law to provide a minimum level of cover. Despite the peace of mind insurance offers and its potential to make a huge difference to people’s lives, many people remain under-insured and aren't aware of the insurance options available to them.
If you’re thinking about getting some insurance to protect you and your family, it’s worth checking out what’s on offer from your super fund as they do tend to offer very competitive premiums. You may even discover you already have insurance through your super you weren’t aware of.
What kinds of insurance are offered through super?
If your super fund offers an appropriate level of cover for your needs, it can be a really simple and cost-effective way to insure yourself and your family.
The main insurance types offered by superannuation funds include:
- Life insurance
- Total and permanent disability (TPD) insurance
- Income protection (IP) insurance
Life insurance
If you hold life insurance (also known as death cover), the beneficiaries you nominate on your policy, usually your family, receive a benefit in the event of your death. Depending on the rules of the super fund, this money can be paid to them either as a lump sum or as an income stream, and provides them with financial support to ensure they can continue paying the bills after you’re gone.
Choosing life insurance is a big decision and you need to be realistic about how much cover you need. Consider factors such as how much debt you have, and how much your family will need to maintain their lifestyle both now and in the future.
Total and permanent disability (TPD) insurance
TDP insurance provides a financial safety net if you become seriously ill or permanently disabled and are no longer able to work. TPD insurance is designed to help cover the costs of rehabilitation as well as support the future cost of living.
It is important you check how your insurer defines TPD before taking out a policy as each insurer generally has its own definition. Usually TPD is defined as either:
- When you can no longer work in your usual occupation; or
- When you can no longer work in any occupation.
Some levels of private health insurance can cover TPD so it’s a good idea to consider your health cover before taking out TPD insurance.
Income Protection (IP) insurance
IP insurance provides you with income for a certain period if you can’t work due to a temporary disability or illness. Unlike Life or TPD insurance, IP insurance covers you just for the income lost through your inability to work. For families or individuals who rely heavily on one income to meet expenses, IP insurance can be an extremely important consideration.
Again, each policy differs in how it defines disability and illness and the type of benefits offered, it’s important to make sure you fully understand what you’re getting.
Generally, IP insurance will offer coverage up to a maximum of 75 per cent of your wage for a maximum amount of time – this could be two or five years or until you’re 65.
You will need to choose a waiting period when you select your coverage level. This is the amount of time you’ll have to wait after you become ill before you can make a claim. Periods usually range from 30 to 90 days so consider how much leave you have saved up with your employer when making your decision.
Things to consider
Besides already having an established relationship with your super fund, there are a number of benefits to taking out an insurance policy through your fund:
- Because super funds secure bulk insurance rates, these savings are usually passed on to you in the form of cheaper premiums.
- There is next to no effort required to manage payment as the premiums are automatically taken out of your super account.
- There can be tax advantages as premiums are paid from your super account (before-tax income) rather than your salary (after-tax income).
- Many super funds will accept you for basic coverage without asking you to undertake a health check, while some will even provide additional cover without the need for a medical.
Some things to take into consideration when insuring through super:
- If you stop work, decide to switch super funds or your employer stops paying contributions into your account, your insurance cover may end without you being aware.
- Similarly, if you have a number of super funds, you may be paying insurance premiums through both funds for similar cover if you don’t remember to cancel one.
- The level of cover you can get may be limited so you may need to take out another policy outside your fund to ensure you have the coverage you need.
- You may be liable to pay tax on some benefits.
- It may not be possible to get the same level and benefits of cover at the same price if you cancel then reissue your insurance policy.
- There can often be delays in the payment of life insurance benefits as these go to the fund first, which then distributes them to beneficiaries.
- Without making a binding nomination, your life insurance will go to your dependents, whether or not they are the people you wanted to be the recipients.
Did you know? Some funds will allow members to keep their existing insurance cover even if only a small balance remains in the fund.
How to get insurance
As with any other insurance policy, you are required to pay premiums to be covered through your super fund.
By law, your employer’s default fund must offer a minimum level of life insurance which you can then choose to increase, decrease, or sometimes cancel altogether. The fund can decide to offer life insurance for a minimum premium of 50 cents a week (for those under 56 years), or an age-based benefit equal to or greater than the amounts shown in the table below:
| Age |
Minimum level of insurance cover |
| 0-19 |
Nil |
| 20-34 |
$50,000 |
| 35-39 |
$35,000 |
| 40-44 |
$20,000 |
| 45-49 |
$14,000 |
| 50-55 |
$7,000 |
| 56+ |
Nil |
You are required to tell your insurer of any pre-existing medical conditions or relevant past injuries prior to taking out a policy, otherwise any claims you make may be rejected and your policy will be useless.
Need more info? For information on your current cover, how to upgrade and other options open to you, check your member statement, your fund’s website and product disclosure statement, or give them a call.
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