Insurance: the hidden gem in your superannuation fund

April 10th 2024 | Categories: Insurance | | Tags: insurance |

Understanding your superannuation insurance cover.

We traditionally see superannuation as a place to direct and invest our retirement savings. However, superannuation can also be an effective avenue for our insurance policies. The structure of default personal insurance within superannuation differs from other ownership structures, and it is important to be aware of the key variances.

Who has superannuation insurance?

Most Australians with a super account will hold some level of default personal insurance within the fund, yet only half of us know what cover we actually have[1]. Recent legislative changes have altered the landscape, eliminating automatic default insurance unless you meet specific requirements. Individuals under 25 with a balance below $6,000 in their super account must now actively opt-in for default cover. Furthermore, ceasing employer contributions for a minimum of 16 months or more puts the policies at risk of lapsing. The introduction of these changes has made reviewing insurance inside super more important than ever. 

What insurance can you hold inside super?

Inside super, you can have Life, Total and Permanent Disability cover (TPD) and Income Protection (also known as Salary Continuance) policies. Inside super policies tend to have limited definition options, for example; you cannot hold Own Occupation TPD inside super. Even though this may seem insignificant, these definitions can be very important at claim time. Other types of insurance including Trauma cover generally cannot be held within super.

Can I increase my default cover?

Automatic, and typically low, levels of life and TPD cover within a super fund can be fine when you are just starting out and have no dependents or debts. But as you travel through life’s stages – building a partnership with your significant other, raising children and paying a mortgage, it can be a different story. You can increase your default levels, but the insurer will likely require additional medical information to assess your application.

What are the pros and cons of holding insurance inside super?

Clearly, there are pros and cons of insurance inside super. Every superannuation provider will have their own rules, but let’s compare some of the main points:

Pros:

• Alleviate pressures on personal cashflow
• Guaranteed cover, with no underwriting requirements for default levels meaning it is an ideal option for those with medical conditions
• Premiums are paid through the tax-effective environment of superannuation
• Low-cost and easy to pay, reducing the chance of lapsed policies

Cons:

• Premium payments diminish your superannuation balance
• You cannot hold all insurance types within super
• More basic definitions meaning the policies can be harder to claim on, causing claims to take longer
• Ongoing contributions to an active account are required to keep the cover in place
• Lump sum claim proceeds may be taxed, depending on your beneficiary nomination

Still unsure if your insurance inside super is right for you? 

Overall, there really is no right or wrong answer, and there is no ‘set and forget’ solution. There are benefits to being insured through super, benefits that may become more or less important as your life changes. Policies inside and outside of superannuation can both play a role in your overall insurance portfolio and often clients end up with a mix of insurance policies, all with differing ownership structures. In turbulent economic climates, having the option to fund premiums through super-minimising stress on living expenses can be a great option for peace of mind.

You may also be interested in our articles:

• Buying shares vs investing more into your super
• Should I take out insurance through my super?
• Shares vs Property: What do I invest in?
• Is it better to invest in property or shares?

Everyone’s personal circumstances are different, and reviewing your insurance needs regularly with a financial adviser can ensure you are receiving the highest quality policies at the most affordable price point. To ensure you have suitable cover for your needs, you can book a complimentary consultation with one of our trusted advisers via the form below.  

_{[1] MetLife Australia | Insurance Inside Super 2019 Report}

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