Superannuation Insurance: How to Maximise Your Benefits

Most Australian superannuation funds provide life, total and permanent disability, and income protection insurance through a super account. Learn how it works.
Insurance through superannuation
Insurance Through a Super Account

    Many Australians have insurance through a super fund, mainly because group insurance cover is convenient and generally more affordable. Insurance through Super often includes life insurance, total and permanent disability (TPD) insurance, and income protection insurance for eligible members.

    This insurance cover helps your financial situation (or your dependants) when you:

    • Have a temporary disability
    • Are permanently unable to work
    • Have a permanent disablement
    • Are diagnosed as terminally ill
    • Pass away

    When considering your options for insurance through Super and how to maximise your benefits, it’s important to consider:

    1. Choosing the best type of insurance through your superannuation fund.
    2. How much cover is best for your personal circumstances?
    3. Which policies match your insurance needs?

    About Insurance Through Your Super Fund

    In Australia, most Super Funds provide three types of life insurance for their members, which are:

    1. Life insurance cover
    2. Total and Permanent Disability (TPD) insurance
    3. Income protection cover

    The availability of insurance in super depends on various factors, including the fund’s demographics and its members’ risk level.

    Learning about the common types of insurance within your super fund helps you choose the coverage that best suits your personal needs and financial situation.

    A woman viewing superannuation insurance documents

    Life Insurance Through Super

    Life cover is the most common type of insurance through Super. That’s because it pays a lump sum to your family when you die or have a terminal illness diagnosis. Thankfully, this vital financial safety net is often automatically included for Super Fund members. However, please consider how much cover you need based on your personal circumstances and financial obligations.

    There are several factors to consider when selecting life cover in a super fund, such as:

    • Cost-effectiveness
    • Coverage adequacy
    • Flexibility
    • Exclusions and limitations
    • Portability
    • Expiry date
    • Additional benefits like income protection cover

    You can maximise the benefits of your life cover by regularly reviewing how much insurance you need at each stage of your life.

    About Total and Permanent Disability (TPD) Insurance

    TPD insurance is another key element of insurance through superannuation, providing a lump sum benefit when you are permanently disabled and unable to work due to illness. This kind of insurance offers financial support during a difficult period, allowing you to concentrate on healing better rather than worrying about money.

    While total and permanent disability insurance provides vital financial help, it’s important to understand that this coverage typically ends at age 65 or when you retire. Also, the maximum amount of permanent disablement cover through a super fund is often less than that of a standalone policy. Hence, if you need to make a TPD claim, the level of coverage may not equal your take-home pay.

    Income Protection Insurance

    Most super funds also provide income protection insurance to fund members. You can make an income protection claim and receive monthly payments when you are temporarily unable to work because of an illness or injury. Once approved, you will receive a monthly benefit payment that is usually 75% of your regular income

    Benefit payments from income protection insurance often continue for up to two years, with some super funds offering extended coverage for up to five years.

    A financial advisor adjusting insurance coverage at a desktop computer

    How Much Cover Do I Need?

    Regularly reviewing your current superannuation insurance coverage helps maximise your benefits by ensuring its suitability for your needs and personal circumstances. We recommend you consider factors such as:

    • Coverage benefits
    • Financial needs
    • Cost-related factors
    • Provider network
    • Policy assumptions
    • Terms and conditions

    You can then make informed decisions about any required adjustments to optimise your insurance coverage.

    Adjusting Your Super Insurance Coverage

    If the current insurance inside your super no longer meets your needs, you can adjust your coverage accordingly. For example, some Aussies have more than one superannuation account and are paying premiums on all of them. In that case, we recommend you do a super account online check. Then make changes by logging into the super fund’s website or contacting them directly.

    To maintain the most suitable insurance cover, it’s recommended to review and adjust your policies when you have a significant life event like:

    • Marriage
    • Having children
    • Buying a house
    • Changing jobs

    Staying proactive in managing your default insurance coverage can help ensure you’re always protected in the best possible way.

    Cost of Insurance Premiums and Tax Benefits

    In Australia, premiums for insurance in super are usually deducted from your superannuation account balance. Hence, you don’t pay premiums out of pocket. However, while super funds may have a 15% tax rate, which helps lower your marginal tax rate, you could be paying excessive admin fees, reducing your super account balance.

    The average cost of insurance premiums within super funds typically ranges from $600 to $840 annually, depending on factors like age and level of cover. So, it’s a good idea to regularly review how much insurance you need and the premium costs to get the best fit for your finances.

    How to Get the Most From Your Super Fund Insurance Cover

    By understanding the relationship between your super balance and premiums, you can optimise the value of your super fund insurance.

    Here are three steps to ensure you make the most of your super insurance:

    1. Regularly review your superannuation account balance.
    2. Stay engaged with your super fund.
    3. Take action to prevent paying premium increases that reduce your savings.

    You can ensure the insurance provider puts members’ interests first by reviewing your super fund’s annual statement and following these three steps. This ensures your default insurance works for you and your other super fund members.

    Be Aware of Increasing Insurance Premiums

    Increasing premiums can have a sizeable impact on your super balance and retirement savings. The factors that impact insurance costs are your age, degree of risk, and additional loadings according to your unique risk profile. So you must keep updated about the insurance in your super account and take steps to manage this expense, particularly if you are paying premiums through multiple superannuation funds.

    Some strategies for managing premium increases include:

    • Reviewing your current insurance policy
    • Researching and comparing insurance offerings from different super funds
    • Know the terms and conditions of your cover
    • Choose a higher excess to reduce premium costs
    • Ask a financial advisor or insurance specialist for advice

    When Premiums Can Erode Your Savings

    There are instances where insurance premiums can reduce your super savings. For example, having multiple insurance policies with overlapping coverage or paying high premiums for unnecessary coverage. As a result, you must regularly assess your coverage to find any overlaps and modify it to only include what you need.

    Also, consider combining your policies and super accounts to further cut costs. Doing this saves you money on fees and premiums while managing and tracking your investment options with less effort.

    Automatic vs. Opt-In Policies

    In Australia, there are two primary policy types for insurance through Super: automatic and opt-in.

    • Automatic insurance policies are provided to new Super Fund members without any action being required.
    • Opt-in insurance policies require members to actively select and apply for coverage.

    The opt-in method gives you more control over how much coverage you need and what you pay in premiums. Remember that as you progress through each life stage, your needs will probably change, altering the level of coverage you need.

    Check You’re Automatically Covered

    Automatic insurance in Super offers a cost-effective and convenient method to get necessary insurance protection. The default coverage typically includes life insurance, TPD insurance, and income protection insurance, all offered without the need for medical underwriting or extra application processes. To confirm if you’re automatically covered, consult your super fund’s website or product disclosure statement, or register for access to your super account online to check your policies.

    While automatic coverage offers several advantages, it may not provide the level of coverage for your specific needs.

    Close up image of magnifying glass over tax documents and super fund details

    Super Fund Insurance Tax Savings

    Tax savings are one of the major advantages of buying insurance through your super fund. Here are some of the key considerations:

    • Insurance premiums in super funds are generally not tax-deductible.
    • However, income protection premiums paid by the trustee of the superannuation fund are tax-deductible.
    • Also, the super fund can claim a tax deduction at the superannuation rate of 15% if the insurance policy is owned through superannuation, which is beneficial to your marginal tax rate.

    Including Insurance in Your Financial Plan

    Including insurance in your overall financial plan will help establish a stable financial future for you and your loved ones. You can effectively integrate insurance into your financial plan by considering factors like:

    • Protecting assets and reducing risk
    • Ensuring coverage keeps up with assets
    • Considering taxes when setting up life insurance
    • Calculating income replacement needs, debt coverage, and human life value

    Making Claims and Getting Benefits

    Making an insurance claim and accessing benefits through your super fund’s insurance policy can be complicated and time-consuming. However, it is necessary to know the process and steps to successfully access your benefits.

    Retirement Transition: Insurance Considerations

    Your insurance requirements will likely change as you near retirement age. Be aware that life insurance and TPD insurance coverage in super funds normally expire at 70 and 65, respectively (or at your retirement age). So, you must check your terms and conditions to maintain coverage and make any needed adjustments.

    Protecting Your Dependents: Death Cover and Super

    Ensuring the financial security of your dependents in the event of your passing is an essential aspect of financial planning. Death cover in a superannuation fund, also known as a super death benefit, provides a lump sum or income stream to your nominated beneficiaries upon your death or diagnosis of a terminal illness.

    You can choose the coverage that will best protect you and your loved ones by being aware of how death cover in Super works.

    Expert Legal Advice from Super Insurance Lawyers

    When something goes wrong, and you can’t earn a regular income, it can be challenging to access the entitlements contained in insurance through your super. Sometimes, insurers are reluctant to make a lump sum benefit payout, fund an income stream, or make a death benefit payout. That’s because funding your entitlements impacts their profitability. So they will find any excuse to reduce or deny your claim.

    That’s when an experienced superannuation lawyer can help. Due to their many years of litigation experience, the team at Aussie Injury Lawyers consistently wins 99% of insurance claims. Choosing our personal injury law firm for your case also means accessing our 100% no win, no fee, no risk guarantee—pay when you win and zero if you lose. Call AIL now for your free claim assessment at 1300 873 252

    Superannuation Insurance FAQs

    What insurance can I select through your superannuation?

    Insurance through Super often has default cover including life insurance, TPD insurance cover, and income protection. Reviewing how much coverage you need and comparing it with other insurance options is important to finding the right policy.

    Can you claim insurance premiums from superannuation?

    Yes, you can claim insurance premiums from superannuation. Insurance premiums are automatically deducted from your super balance, and a tax deduction may be available to the trustee of a complying super fund. Moreover, some superannuation funds will pass on the tax savings to their members.

    Is it worth getting life insurance with Super?

    Whether or not to get life insurance through your super is a personal decision based on the trade-offs between having less in your retirement savings and peace of mind for you and your family. Consider carefully if life insurance is right for you.

    How often should I review my Super Fund insurance coverage?

    Regularly reviewing your super fund insurance coverage is crucial, particularly after major life changes or changes in your financial responsibilities.

    What factors will affect premium increases in Super Fund insurance?

    Age, risk level, and risk-specific loadings can all impact super fund insurance premiums, making it important to consider these factors when assessing insurance costs.



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