WHAT ABOUT INSURANCE?
Accidents, serious illness and death can happen to anyone at anytime.
Having insurance for these events gives peace of mind that you or
your family have some protection from the consequences of the unexpected.
Many super funds offer insurance cover for their members – usually
death and Total and Permanent Disability (TPD) and sometimes income
protection, as explained in the table below.
Your beneficiaries may receive a lump sum payment
or income stream upon your death.
Total and Permanent Disability (TPD)
You receive a lump sum payment once the insurer
has accepted your claim for total and permanent disability.
You also need to satisfy a superannuation ‘condition of release’
which allows you to access the payment.
Accessing insurance cover through a super fund can provide
advantages. Some potential advantages include:
- Bulk discount: Insurance cover can be much cheaper due
to the bulk discount available to super funds.
- Tax advantages: Because premiums are paid from a member's
super account, most of the money in this account will have
only been taxed at 15%, rather than marginal tax rates.
The money paying the premiums has been taxed less so there's
more money to pay for a higher level of cover if desired.
- Convenience: Premiums are usually deducted automatically
from a member’s super account. This also means the added
convenience of not having to deduct money from your household
budget to pay for premiums.
- Automatic acceptance: Often members are automatically
accepted for basic cover which means they can be protected
against death and/or disablement without having to answer
health questions or undergo medical tests.
Did you know?
Life insurance is more affordable than
many Australians believe. Securing both death
cover and income protection for a 31 year old
male, married with two children and earning $75,000pa
would cost an average premium of $2.83 per day!
Keep in mind there may be disadvantages of having insurance
through a super fund. Some potential disadvantages include:
- Limitations on the level of cover.
- Limitations on benefit periods for income protection insurance.
- Being uninsured. If you move between funds or your employer
contributions to the fund cease or for some reason your
super account becomes inactive, your insurance cover may
lapse without you realising.
- Being overinsured. If you have more than one super fund,
check to make sure you are not doubling up on premiums and
paying for more cover than you need.
- Delays in payments. There can be delays in payments to
beneficiaries while the trustee identifies and resolves
any other claims, such as a former partner or children from
a previous relationship may be entitled to part of the benefit.
As a general rule, insurance can be
used to meet the shortfall between your needs
and existing savings. Some people take out death
cover to pay out their debts and leave some money
left over to help their family get back on their
feet. It's a good idea to review your insurance
needs from time to time to ensure your cover takes
into account any life changes. You should consult
your financial adviser who can assist you with
your insurance planning.
GETTING THE RIGHT COVER
Many super funds offer ‘automatic acceptance’ for a
basic level of cover for most active members, with an
option for members to increase their level of cover.
You might be happy with the cover provided by your fund
or you might want to consider boosting it with additional
cover either through your fund or outside of super.
Working out the right level of insurance cover for your
personal circumstances will help provide peace of mind
to you and your dependants.
As a rule of thumb, full-time workers in their mid
30s with young children need at least 10 times their
taxable earnings in cover.
Dylan, 31 and his wife Brenda, 28 were saving for
a new house for their growing family. Dylan was very concerned
about his family’s capacity to cope financially should Brenda
or he die. Dylan knew that he had some death cover through
his superannuation fund, but he felt that this would not be
enough for his family.
Dylan and Brenda decided to speak with a financial
adviser. The financial adviser recommended that Dylan increase
the sum insured through his superannuation fund to cover their
mortgage, personal loan, debts and future expenditure. The
financial adviser also recommended that they take out a term
life insurance policy on Brenda’s life.
Then tragedy struck – Brenda was killed in a car
crash, leaving Dylan to bring up two small children on his
own. Dylan received a lump sum payment from his wife’s insurer,
which was enough to buy the family home and make sure that
their children had after school child care. Brenda’s term
life insurance policy gave her family financial security.
CHANGING SUPER FUNDS
If you're thinking of changing super funds, be careful because
the insurance cover from your old super fund will probably
cease. You should ensure you're eligible for insurance at
the level of cover required in your new fund before finalising
your choice to switch super funds.
Before moving to a new super fund, you should consider:
- Premiums can differ greatly between superannuation funds
for the same level of cover. Before you change funds check
to see if your new super fund offers insurance cover and
make sure you compare what you’ll be paying for that cover.
- Be aware that if you decide to purchase insurance outside
super you could end up paying more. Because of the bulk
discount super funds receive, cover through a super fund
is often cheaper than purchasing insurance outside the superannuation
- Be aware that you could be uninsured for a time. If you
leave one fund and your cover ceases in your old fund, you
may be uninsured for a period – particularly if your new
fund waits until contributions are received or until a medical
test has been completed before cover commences.
- Be aware you could be overinsured. If you have more than
one superannuation fund you should check to make sure that
you're not paying for more insurance cover than you need.
- Many employer or industry superannuation funds have an
option for you to continue your insurance when you leave
the fund, known as a ‘continuation option’. This option
allows you to take out an individual policy on your own
life within a specified timeframe, usually 30 days, after
leaving the superannuation fund.
For more information about insurance, read 'Smarter
Insurance: Protect your assets and secure your future'
booklet available as part of this range of publications. Freecall
1800 009 180 for a free copy.
Are you underinsured? Underinsurance is when
a person pays an insurer a premium for an insurance
policy that doesn’t cover the financial impact on themselves
or their family in the event of accident, serious illness
or death. If you are underinsured you and your family
may find yourselves in financial difficulty. Not having
insurance or enough insurance can erode your savings
and investments, deplete your assets or result in a
financial crisis. Taking the time to make sure you have
adequate insurance means that you’re not taken by surprise
– at a time when you don't need any more stress in your