Video: Beginners guide to super and insurance

Reading time: 4 minutes

Camille Schmidt from SuperRatings talks about some of the benefits of being insured through your super fund, what types of insurance you can get, how to think about your insurance needs, how to compare insurance options and why premiums have recently risen.

Transcript

Hi, I’m Camille Schmidt, Market Insights Manager at SuperRatings. Really excited to be sharing some insights into superannuation and insurance today.

Why do super funds provide insurance, and what are the benefits to being insured through super?

Well, essentially, it was recognised that Australians are inherently underinsured. And super was seen as one of the most cost-effective ways to provide coverage for as many Australians as possible.

So there’s also a range of benefits to providing insurance through superannuation. So the actual price that you pay can be a lot cheaper. This is because group insurance is based on the risk of the whole of the membership of the super fund and not your individual risk alone.

And when joining an employer, you’ll often get access to insurance rates that your employer has negotiated for you with their insurance provider, so these can be cheaper as they’re essentially buying in bulk the cover levels.

The other benefit is that the premiums are paid out of your superannuation account. So having insurance doesn’t affect your day to day budget.

What types of insurance can you get through a super fund?

So there are three main types of insurance offered by superannuation funds.

The first is life insurance. It’s also known as death cover. So essentially what happens with this is in the unfortunate event that you become terminally ill or pass away, your super fund will pay a lump sum benefit to your superannuation account.

The second most common type is total and permanent disability insurance, or TPD. And essentially what happens with this insurance is you receive a benefit to your superannuation account in the event that you suffer from a disability, that means you’re no longer able to work.

The third type is income protection insurance. It’s also known as salary continuance or temporary disability insurance. So with this insurance, you receive a portion of your income, typically around 75% , and that’s paid to cover you in the event that you are suffering from an injury or illness, which is temporary. So these payments can provide a safety net to cover financial responsibilities like your mortgage or other debts to ensure that your family can continue to maintain its current lifestyle if you’re unable to provide for them.

Do the insurance options provided by super funds vary much?

So the calculation design and cover levels can vary considerably across funds, but those three fundamental types of insurance are generally pretty similar.

So it is important to have a look at your cover levels and the premiums you are paying to see how they compare across providers. So this is also due to the underlying demographics of a fund and the rates that they’re able to negotiate.

For example, whether their members are typically younger or older or if they work in higher or lower risk industries. For example, mining would be considered a high risk industry.

What should people consider when thinking about their insurance needs?

So when assessing your insurance needs, you should consider your financial responsibilities and the cost of living that you have. So looking at your budget, how much you need to pay for housing in terms of your mortgage, if you have one or rent, other bills like utilities and childcare expenses.

If you are younger, you might have less debt. But if you are older and have a family and a mortgage, then you may need more cover to ensure you’re able to maintain these payments.

Are there scenarios where it doesn’t pay to get insurance through your super?

So in some cases, you may not be able to access certain types of insurance through your super. One type is trauma insurance or the income protection insurance offered by your fund may not be as comprehensive as what’s required. So it’s important to have a look at these areas if that’s of interest.

What tips can you give for people comparing super funds by their insurance options?

So when you’re comparing funds, it’s important to look at the level of cover as well as the costs associated to ensure that you’re comparing similar offerings. As you may think that your insurance is expensive, but it may be because you’re subject to receive a higher payout.

The devil is also in the detail. So there can be different definitions of what it means to be total and permanently disabled or in order to receive income protection insurance. So it’s important you have a look through these definitions and also compare the terms and conditions or Ts & Cs across funds.

So it is important to look at the time frames and what would be most suitable for yourself. Typically, income protection insurance is offered   with the benefit paid for up to two years. Long term income protection insurance is sometimes offered as well with the benefit paid for up to five years.

Do super funds provide advice about insurance?

So about two thirds of funds provide online calculators that can help you assess your insurance needs.

And there’s also advice services offered through your fund which will cover insurance. So it’s important to contact your fund and have a chat and see how they can help you to ensure that your level of cover is going to suit your lifestyle.

What is behind the roughly 25% increase in income protection premiums in the last 12 months?

So the premium increases are likely to be driven by recent legislation. So there was the Protecting Your Super and the Putting Members Interests First bills which have come into effect. So essentially what’s happened is it’s reduced the number of members who are insured across the market. And because income protection insurance had a smaller pool of members to start with, we’ve seen great increases for this type of insurance.

So we’ve also seen a rise in mental health claims. And this is impacting on premiums for income protection insurance more than death and TPD as well.

COVID is yet to flow through into the figures that we are seeing. However, through our discussions with funds, they do anticipate that there will be a rise in mental health related claims due to this pandemic environment. So that’s one that we’ll continue to monitor to see how that impacts on claims and payout ratios across the industry.

The discussion across the industry continues to focus on the cost of insurance. However, we believe that significant value in having insurance through your superannuation, as it can provide an important safety net when facing hard times.