Why you need to know what insurance you have through super


Super isn't just about saving for retirement. Your fund can also be a source of low-cost personal insurance, and there are good reasons to know what you're covered for - and the amount of protection in place.

Super funds typically offer two types of default insurance - life cover, which provides a payout if you pass away, and total and permanent disability (TPD) insurance, which kicks in if you become seriously disabled and can't work again.

The grey area is income protection insurance. This pays a regular income for a set period if you're temporarily unable to work because of illness or injury. Some funds offer income cover automatically. Others require members to opt in.

why you need to know what insurance you have through super
You can ask your super fund to keep paying insurance premiums even if you're not receiving employer-paid super. Photo: Getty Images.

The common thread is that insurance through super is very simple. Your fund does all the work arranging cover on your behalf.

It's also a lot cheaper than buying insurance outside of super.

For women, the premiums paid through super can be 25-55% less than the cost of cover outside of super.

The catch is that when it comes to life insurance, you need to spell out who will receive the payout - perhaps your children, partner or even parents, by completing a binding nomination. You can find the relevant form on your fund's website.

Without a binding nomination, the fund trustees can decide who gets the money, and it may not be someone you'd choose.

Premiums impact long-term super savings

While super is low cost, it is not free.

The premiums come out of your super balance. Over time, this will impact the value of your retirement savings.

The Productivity Commission estimates that insurance premiums can reduce retirement savings by 14%, and potentially by more than one-quarter for low-income earners.

That's why it's worth checking how much cover you have in place. This can usually be done by logging onto your super account online.

What matters is that you have sufficient cover if you ever need to call on a policy.

Your fund may stop paying premiums

Insurance held through super doesn't continue indefinitely.

Life insurance usually stops at age 70, and TPD and income protection insurance tend to cut out at age 65.

There are other times when your fund is required by law to put a halt to cover.

If you're aged under 25, or have less than $6000 in super, your fund won't automatically provide insurance.

The bigger issue for women is that funds will stop paying premiums if there haven't been any contributions paid to your account for at least 16 months.

It's a situation that can apply to mums taking extended time out of the workforce to raise children.

If that sounds like you, it's worth thinking through your options.

You can ask the fund to keep paying insurance premiums even if you're not receiving employer-paid super.

Yes, it can take a solid chunk out of your retirement savings. But for single mums in particular, insurance through super could be a financial lifeline if you're left with a serious disability.

And it doesn't pay to think it will never happen to you.

Analysis of claims by super body ASFA shows that over a 40-year working life, we each have a 5% chance of making a claim for TPD and a 5% likelihood of passing away prematurely triggering a life insurance claim.

Hopefully you won't be that one in 20. But it's reassuring to know protection is in place if the dice rolls against you.

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A former Chartered Accountant, Nicola Field has been a regular contributor to Money for 20 years, and writes on personal finance issues for some of Australia's largest financial institutions. She is the author of Investing in Your Child's Future and Baby or Bust, and has collaborated with Paul Clitheroe on a variety of projects including radio scripts, newspaper columns, and several books.