Should I take out insurance through my super?

September 11th 2023 | Categories: Insurance |

Different types of life and personal insurance serve to offer financial support in the event you cannot earn income, ensuring the well-being of your loved ones in times of adversity. Insurance products such as life insurance and total and permanent disability (TPD) cover are available through your superannuation fund or directly through an insurance company. There are also other products not usually offered by super funds such as accidental death and injury insurance, and critical illness or trauma cover. Almost 10 million Australians have at least one type of insurance (life, TPD or income protection) provided through superannuation.ⁱ

Check what your fund offers

Superfunds usually provide three types of personal insurance. These include:

Life insurance or death cover provides a lump sum payment to your beneficiaries in the event of your death.
Total and Permanent Disability (TPD) pays a lump sum if you become totally and permanently disabled because of illness or injury and it prevents you from working.
Income Protection pays a regular income for an agreed period if you are unable to work because of illness or injury.

While these insurance products can provide valuable protection, it’s essential to be aware of circumstances where coverage might not apply. For example, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months.ⁱⁱ Some funds may also cancel insurance if your balance is too low, usually under $6000. Automatic insurance coverage will not be provided if you’re a new super fund member aged under 25.

Explore our Knowledge Centre below for more insights.

Knowledge Centre

Should you insure through super?

Using your super fund to buy personal insurance has advantages and disadvantages so it’s a good idea to review how they might affect you.

On the plus side

Cost-effective: Insurance through super can be more cost-effective because the premiums are deducted from your super balance, reducing the impact on your day-to-day cash flow.
Automatic inclusion: Many super funds automatically provide insurance cover without requiring medical checks or extensive paperwork.
Tax benefits: Some contributions made to your super for insurance purposes may be tax-deductible, providing potential tax benefits.

Think about possible downsides

Limited flexibility: Super funds can only offer a standard set of insurance options, which may not fully align with your needs.
Reduced retirement savings: Paying insurance premiums from your super balance means less money invested for your retirement, potentially impacting your final payout.
Coverage gaps: Depending solely on your super fund’s insurance might leave you with coverage gaps, as the default options may not cover all your unique circumstances.
Possible tax issues: Be aware that some lump sum payments may be taxed at the highest marginal rate if the beneficiary isn’t your dependent.

Don’t forget the life admin

Whether you decide to buy insurance through your super fund or not, it is important to regularly review your insurance coverage to make sure they reflect your current life stage and to make sure you are not paying unnecessary premiums if you have more than one super fund.

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Insurance within super can be a valuable safety net, providing crucial financial support to you and your loved ones. Understanding the types of coverage offered, the pros and cons of insuring inside super and the need for regular reviews are essential steps to make the most of this benefit. If you would like to discuss your insurance options, give us a call.

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What you need to know: This information is provided by Invest Blue Pty Ltd. (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice regarding those matters and seek personal financial, tax and/or legal advice before acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

_{i The future of insurance through superannuation, Deloitte and ASFA, 2022 1051554 Insurance through superannuation.indd}
_{ii Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, No. 16, 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (legislation.gov.au)}