One of the best deals in superannuation has only a slight connection to your life in retirement. If you’re a member of a large super fund (such as an industry fund or retail fund or public sector fund), and you joined the super fund via your employer, then you’re likely to have access to an excellent deal in life insurance.
It’s difficult enough to get many Australians interested in superannuation and retirement, so to then take it one step further and encourage Australians to talk about the possibility of dying is near impossible. Life
Fortunately, most Australians are members of super funds that provide at least minimum cover in the event of a member’s death. If you don’t choose your own super fund, then your employer must have chosen a super fund that provides minimum life insurance cover.
If you have children or other dependants, then thinking about
If that’s not enough incentive, then the disturbing findings from a recent study should motivate you to at least review your existing life insurance cover (if you have any). According to the Lifewise/NATSEM Underinsurance report (released in March 2010), one in five parents will be unable to work, or will die before retirement age. I explain the findings of this report in the article Life insurance: one in five parents will die early, or be too sick to work.
Insurance: your super fund’s bonus benefit
In most cases, any super fund that you have joined via your employer, will provide life insurance at very competitive rates because you will be covered under a ‘group’ policy rather than individual policy which spreads the risk over a greater number of people and generally means better rates. For some individuals however, such as young healthy women, the group rates may be slightly higher than if they applied for life insurance as an individual, although the benefits of having your super fund pay the premiums often outweighs the cost difference.
Your life insurance cover is usually packaged with disability insurance, which means your super’s insurance policy also covers you if you become permanently incapacitated in specific circumstances. Some super funds also offer you income protection insurance, in the event that you are unable to work for a period of time due to illness or injury.
In summary, super funds can provide fund members with three types of insurance cover:
- Life insurance (or death benefit) cover
- Total and permanent disability (or invalidity) insurance (TPD)
- Income protection (or salary continuance) insurance
Automatic basic cover
Many super funds automatically provide members with basic insurance cover. The deal with basic cover is that you don’t have to undergo a medical to receive this cover, or pay higher premiums when you suffer a pre-existing health condition.
Under automatic cover, you can expect one or two units of death and permanent disability cover, which is a dollar amount based on your age, and sometimes, based on your occupation. This level of insurance is generally not an adequate level to look after your family if you become sick, or die, but at least it’s a good start.
You may belong to a super fund that automatically gives you basic income protection cover if you temporarily can’t work because of illness or injury. Or you may belong to a super fund that automatically provides basic death cover only.
Note: Automatic basic insurance cover is only available under certain circumstances. You generally have access to basic cover if your employer is an employer sponsor of the super fund. What this means is that your employer has a contractual arrangement with the trustee of the superannuation fund to pay
If you join a fund as an individual rather than via an employer-sponsored arrangement, you don’t automatically receive basic insurance cover. In these circumstances, you must complete a personal health statement detailing your medical history. You may also need to have a medical assessment.
Taking out extra cover
For most Australians, basic cover will not be sufficient to look after your family if you get sick or die. If you want to take out extra cover with your super fund, you’re likely to have to undergo a medical, or at least complete a comprehensive medical questionnaire. The premiums for any extra cover that you take via your super fund, is then deducted from your super account.
Do you know who gets your super money if you die?
If you have life insurance cover via your super fund, and you die, do you know who will receive the life insurance payout? Equally, do you know who will receive your super benefits when you die? The answer to this question is very important for two reasons. One, if you don’t nominate your beneficiaries (and even sometimes when you do), the super fund may pay out your insurance and benefits to someone you didn’t expect. Two, insurance payouts to non-dependants are subject to a hefty tax bill, while insurance payouts to
