Navigate the tricky world of getting insurance through your superannuation.
As a financial educator, I often encounter questions about the role of insurance in superannuation. Many Australians are unsure about the benefits and potential drawbacks of having insurance through their super fund. Let’s delve into what you need to know, the pros and cons, and what to expect from your super fund.
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What is Insurance Through Super?
Superannuation funds in Australia typically offer insurance cover as part of their package. The three main types of insurance offered are:
- Life Insurance (Death Cover): Pays a lump sum to your beneficiaries if you pass away.
- Total and Permanent Disability (TPD) Insurance: Provides a payout if you become permanently disabled and are unable to work.
- Income Protection Insurance: Offers a replacement income if you’re unable to work for a certain period due to illness or injury.
These insurances are automatically included in many super funds, although you can often tailor the coverage to suit your needs.
Pros of Insurance Through Super
- Cost-Effective: Premiums for insurance through super are generally lower than individual policies because super funds purchase policies in bulk.
- Convenient Payments: Premiums are deducted directly from your super balance, meaning you don’t have to worry about making regular payments from your take-home pay.
- Easier Acceptance: Super funds often have automatic acceptance limits, which means you can obtain insurance without undergoing extensive medical checks.
- Tax-Effective: Premiums are paid using pre-tax contributions, which can be more tax-efficient compared to paying premiums from after-tax income.
Cons of Insurance Through Super
- Impact on Retirement Savings: Since premiums are deducted from your super balance, it can reduce the amount of money available for your retirement.
- Limited Cover: The default cover provided by super funds may not be sufficient for your individual needs, requiring you to opt for additional cover or a separate policy.
- Complex Claims Process: The process for making a claim can be more complicated and time-consuming compared to having a policy directly with an insurer.
- Policy Terms and Conditions: Terms and conditions can vary significantly between funds, and some policies may have exclusions or limitations that aren’t immediately apparent.
Things to Consider
- Assess Your Needs: Determine how much cover you actually need. Use tools like insurance calculators or seek advice from a financial planner to understand the level of cover that’s appropriate for you.
- Review Your Policy: Regularly review the insurance cover provided by your super fund to ensure it meets your current needs. Life circumstances change, and so should your insurance cover.
- Check the Costs: Be aware of the premiums being deducted from your super balance and consider whether it’s worth the impact on your retirement savings.
- Understand the Terms: Read the Product Disclosure Statement (PDS) of your super fund’s insurance to understand what is and isn’t covered. This can prevent unpleasant surprises if you ever need to make a claim.
What to Expect from Your Super Fund
Your super fund should provide clear information about the insurance cover they offer. This includes details on:
- Types of Cover: Information on life, TPD, and income protection insurance.
- Premium Costs: How much the insurance will cost you annually.
- Claim Process: Step-by-step guidance on how to make a claim, including required documentation.
- Options for Adjusting Cover: How you can increase, decrease, or cancel your cover to better suit your needs.
Now is also the perfect chance to ask How Does Your Super Fund Stack Up? And learn if you should get insurance through your superannuation fund here.
