• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

SuperGuide

Superannuation and retirement planning information

  • SuperGuide Premium
  • Account
  • Log In
  • SuperGuide Premium
  • Account
  • Log In
  • How super works
    • Super for beginners
    • Super rules
    • Employers guide to super
    • Super contributions
    • Super and tax
    • Accessing super
    • Super news
    • Women and super
    • Super tips and strategies
    • How-to guides
    • Super quizzes
    • Superannuation Q&As
    • Superannuation glossary
  • Super funds
    • Best performing super funds
    • Super fund rankings
    • Best performing pension funds
    • Pension fund rankings
    • Super fund average returns
    • Super investing strategies
    • Comparing super funds
    • Choosing a super fund
    • Choosing an investment option
    • Super fund fees
    • Insurance and super
    • Super fund profiles
  • SMSFs
    • SMSFs for beginners
    • SMSF administration
    • SMSF checklists
    • SMSF compliance
    • SMSF investing
    • SMSF pensions
    • SMSF strategies
    • SMSF Q&As
  • Plan your retirement
    • Retirement planning for beginners
    • When should I retire?
    • How long will I live?
    • How much super do I need?
    • Will I get the Age Pension?
    • How much will I spend in retirement?
    • Financial advice
    • Retiring overseas
    • Preparing for retirement
    • Retirement planning strategies
    • Retirement calculators and reckoners
  • In retirement
    • Income in retirement
    • Super lump sums
    • Super pensions
    • Age Pension
    • Working in retirement
    • Life in retirement
    • Senior concessions and services
    • Aged care
    • Estate planning
    • Super death benefits

Home / Super funds / Insurance and super

Insurance inside super: A definitive guide

January 18, 2021 by Janine Mace Leave a Comment

Reading time: 5 minutes

On this page

  • What is default insurance inside super?
  • Insurance cover: What is available from my fund?
  • Pros and cons of insurance inside super
  • How much insurance cover do I need?
  • 7 steps to take control of your insurance inside super

Insurance held inside your super fund can be tricky to understand, but it’s an easy – and cheap – way to ensure you and your loved ones are financially protected if something goes wrong.

To helpcut through the confusion, SuperGuide has put together a simple explainer of the key concepts you need to understand.

There’s also a 7-step guide to help you take control of the insurance cover available through your super fund.

What is default insurance inside super?

When it comes to life insurance, Aussies generally hold their cover through their super account. This is because most super funds offer basic default insurance to members when they join the fund.

In most cases, you receive this default cover automatically when you join the fund (this is called automatic acceptance). You are not required to undergo the normal underwriting process, which often means providing health information or completing a medical examination. Automatic acceptance can be a real benefit for older members, or people with existing medical conditions who can’t access cost-effective cover outside super.

You are free to stick with the default level of cover provided by your fund or to adjust your policy to suit your personal circumstances by increasing your units of cover.

Are you with a top performing super fund?

Click here to compare more than 90 Australian super funds, including returns, fees, features, awards and more.

The premiums for default insurance vary and depend on your risk factors. In most super funds, your account is charged monthly for your premiums. It’s worth noting that super funds negotiate directly with life insurers to buy insurance on behalf of their members, so your premium is usually cheaper than purchasing a similar policy outside super.


Need to know: Risk factors and loadings

The premium for insurance cover is determined by the level of risk – or the chance of something harmful or unexpected happening – for the insured person.

Insurers assess and price a range of risk factors to work out how much they would need to pay out if you made a claim against your insurance policy. Risk factors can include your smoking status, height, weight, family medical history and risky hobbies or behaviours.

In a super fund, the insurance risk of all the fund members is pooled, rather than being assessed individually, making cover more accessible to members.

There are risk loadings, however, if you work in hazardous and blue-collar occupations. For example, a ‘light blue-collar’ employee’s premium could be 20%–40% more expensive than if they worked in an office job. If you work in a job that insurers consider ‘heavy blue-collar’, your insurance premium could cost twice that of an office worker.


Insurance cover: What is available from my fund?

The first thing you need to know about insurance inside super is that it’s not a single type of insurance. In fact, most funds offer three different types of cover to members:

  • Life insurance – This is sometimes referred to as death cover and pays your beneficiaries if you pass away. Learn more about life insurance and super.
  • Total and permanent disability (TPD) insurance – These policies pay you a regular income or a lump sum if you are totally and permanently unable to work as defined in the policy. Learn more about TPD insurance and super.
  • Income protection insurance – Sometimes called salary continuance insurance, these policies provide a regular income if you are unable to work for a period. Learn more about income protection insurance and super.

Good to know

Outside the super system, life, TPD and income protection insurance products are often bundled with trauma insurance, which is sometimes called critical illness or recovery insurance.

Under trauma policies, the life insurer pays a lump sum if you suffer a serious injury or critical illness such as cancer or a heart attack. Super funds are not permitted to offer trauma insurance to fund members.


Pros and cons of insurance inside super

Advantages

  • Discounted, affordable premiums
  • Premiums paid from your super account, not your after-tax income
  • Tax-effective as premiums are paid from pre-tax income
  • No personal health information or medical required
  • Easily availability of cover due to automatic acceptance
  • Cover is usually simple to change as your circumstances change
  • Policy information is easy to access via the fund’s website
  • Effective for estate planning, as death benefits can be tax-free to spouses and children aged under 18

Disadvantages

  • Cover amounts may be smaller than outside super and can be less than recommended for younger members
  • Multiple super accounts mean you could be paying premiums for multiple default policies
  • Premiums can erode your super savings
  • Definitions, exclusions and restrictions to policies can be complex and restrict your payout
  • Default policies may be insufficient to cover some disability and injury claims
  • Cover may not be transferrable – or available at the same level – if you switch super fund
  • Life insurance generally only available up to age 65-70
  • Income protection benefit periods and cover are often limited compared to outside super
  • Income protection payouts may take longer as the insurer pays via your fund

For more information, read SuperGuide articles:

  • A simple guide to what tax is payable on super death benefits
  • Super strategies after losing your spouse: What are the rules?

Need to know

The Protecting Your Super / Putting Members’ Interest First legislation commenced on 1 July 2019 and was designed in part to protect super accounts from being eroded by unnecessary insurance policy premiums.

As part of the reforms, super funds are now required to cancel insurance cover if an account is deemed to be inactive, which is generally if no contributions have been received for more than 16 months.

The reforms also require super funds to get members aged under 25 to formally ‘opt in’ if they wish to receive default life insurance.


How much insurance cover do I need?

Now you understand the basics of insurance inside super, it’s important to think about how much cover you need.

According to the actuarial firm Rice Warner, most Aussies have an underinsurance gap, meaning they hold significantly less life insurance than they actually require. The biggest gap is among parents with young children.

The firm’s Underinsurance in Australia 2020 report found this gap is growing, with most Aussies only having cover for 29% of their TPD needs and 92% of their death needs. This is a concern, as most people need TPD insurance more than death cover, particularly when they are young or have dependents.

How much insurance cover you need depends on your personal situation, but according to Rice Warner research, the average basic level of death and TPD insurance needed by an Australian family is:

Compare super funds

Read more...

Advertisement
Age of parentsBasic level of death cover neededBasic level of TPD needed
30$561,000$874,000
50$207,000$499,000

Source: Rice Warner Actuaries

7 steps to take control of your insurance inside super

Once you have a rough idea how much insurance cover you need, you can start taking action:

Step 1: Check your existing insurance cover

  • Log into your super account to find what insurance cover you currently hold (death, TPD and/or income protection cover).
  • Check how much protection your current insurance provides.
  • Check the current premiums being charged to your super account. These will be listed on your annual member statement and are often charged on a monthly basis, so they usually appear in your account transactions.

For more information, read SuperGuide articles:

  • Super funds with the lowest fees for life and TPD insurance
  • Super funds with the lowest fees for income protection insurance

Step 2: Review the details of your insurance policies

  • Find the insurance PDS and any other documents outlining the details of your insurance policy on your fund’s website.
  • Read the policy documents to get an overview of your cover and what is and isn’t covered by your policy.
  • Check for any special conditions or exclusions that could affect your cover (such as working part-time, casually or in a hazardous occupation).

For more information, read SuperGuide articles:

  • 3 reasons the TPD insurance in your super might be junk
  • Industry offers temporary fix for junk TPD insurance in superannuation

Step 3: Assess your current financial situation

  • Think about how much insurance cover you would need to meet your financial responsibilities if you couldn’t earn an income due to ill health.
  • Consider how much your partner and dependents would need to maintain their current lifestyle if you passed away. This includes paying off your mortgage, regular bills, funding private schooling and additional childcare or home help if your partner needs to return to work.

Step 4: Check your cover is correctly structured

  • Consider if you need to adjust or increase your insurance based on your age and financial dependents. Your need for insurance protection is higher the more you are dependent on receiving a regular income.
  • Check you have nominated the right beneficiaries to receive your benefit if anything happens to you. For more information, read SuperGuide article Who gets your super when you die? A guide to death benefit nominations.

Super tips

  • If you change your job or stop work for a period, contact your super fund to ensure your insurance cover remains in place. It’s important to understand the rules in this situation.
  • If you move from an employer plan to a personal plan within the same super fund, ensure your risk factors are correctly classified (white-collar vs. blue-collar), otherwise you could end up paying higher premiums.

Step 5: Research insurance offerings in other funds

  • Review what insurance products other super funds offer. Many funds have been tailoring their cover and policy rules in response to new legislation and changing member needs.
  • Check out insurance policies where claims are paid in instalments rather than as a lump sum, as this may reduce the waiting period before you receive your first payment on a claim.
  • Compare the standard definitions used in different policies, as some definitions reduce uncertainty and the risk of not being paid.
  • Check to see if other super funds offer simpler and more personalised products or have a better claims process.

Step 6: Contact your super fund for advice

  • Ask your super fund for information about their cover and other options they offer members.
  • Review what happens to your insurance cover if you change your super fund. Check whether you can opt in and out of cover and if it will affect your protection in the future.
  • Consider making an appointment with an independent financial adviser (either through your super fund or externally) if you need more personalised advice about how much cover you need and the types of policies available to you.

Super tip

If you need more insurance cover and it’s not available through your super fund, consider purchasing additional protection outside super. There’s no reason you can’t hold insurance cover both inside and outside the super system.

There are a wide range of insurance products available, including those that can be linked to the cover you hold through your super fund.


Step 7: Adjust your current insurance cover

  • Download the necessary documents from your fund’s website and change your cover so it better meets your current personal situation.
  • Don’t cancel your existing insurance cover until your new cover is in place
  • Be wary of opting out of default cover at a young age as you could find yourself underinsured just when you need it and your financial commitments are starting to increase.
  • Talk to an independent financial adviser if you need to top up your default insurance cover with insurance outside super.

Are you with a top performing super fund?

Click here to compare more than 90 Australian super funds, including returns, fees, features, awards and more.

Learn more about insurance in super in the following SuperGuide articles:

Video: Beginners guide to super and insurance

January 21, 2021

Super funds with the lowest fees for life and TPD insurance

January 20, 2021

Super funds with the lowest fees for income protection insurance

January 20, 2021

TPD insurance through super: A definitive guide

January 18, 2021

Income protection insurance through super: A definitive guide

January 18, 2021

Life insurance through super: A definitive guide

January 18, 2021

Guide to SMSFs and insurance

January 14, 2021

Related topics

Insurance and super Super funds

Related features

How-to Super Guides

IMPORTANT: All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more

© Copyright SuperGuide 2009-21. Copyright for this article belongs to SuperGuide Pty Ltd, and cannot be reproduced without express and specific consent. Learn more

Primary Sidebar

How super works
Super for beginners
Super rules
Employers guide to super
Super contributions
Super and tax
Accessing super
Super news
Women and super
Super tips and strategies
How-to guides
Super quizzes
Superannuation Q&As
Superannuation glossary
Super funds
Best performing super funds
Super fund rankings
Best performing pension funds
Pension fund rankings
Super fund average returns
Super investing strategies
Comparing super funds
Choosing a super fund
Choosing an investment option
Super fund fees
Insurance and super
Super fund profiles
SMSFs
SMSFs for beginners
SMSF administration
SMSF checklists
SMSF compliance
SMSF investing
SMSF pensions
SMSF strategies
SMSF Q&As
Plan your retirement
Retirement planning for beginners
When should I retire?
How long will I live?
How much super do I need?
Will I get the Age Pension?
How much will I spend in retirement?
Financial advice
Retiring overseas
Preparing for retirement
Retirement planning strategies
Retirement calculators and reckoners
In retirement
Income in retirement
Super lump sums
Super pensions
Age Pension
Working in retirement
Life in retirement
Senior concessions and services
Aged care
Estate planning
Super death benefits
Advertisement
Compare super funds

Join SuperGuide Premium and give your retirement plans a boost.

Get access to independent expert commentary on the latest super, retirement and SMSF issues, including the top performing super and pension funds, how much super is enough, the latest super rates and thresholds and new super measures and strategies.

You’ll have access to more than 500 articles, how-to super guides, checklists, tips, calculators, reckoners and other tools, as well as a monthly newsletter.

Find out more

Footer

Important: Disclaimer

All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs.

You should consider whether any information on SuperGuide is appropriate to you before acting on it.

If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions.

Learn more

About SuperGuide

SuperGuide is Australia’s leading superannuation and retirement planning website. Learn more

Superguide Pty Ltd ATF Superguide Unit Trust as a Corporate Authorised Representative (CAR) is a Corporate Authorised Representative of Independent Financial Advisers Australia, AFSL 464629

  • Contact us
  • Advertise on SuperGuide
  • Careers

Before using this website

  • New to SuperGuide?
  • Terms and Conditions of Use
  • Financial Services Guide
  • Privacy Policy and Privacy Collection
  • Copyright Policy
  • Editorial Policy and Complaints
  • Disclaimer

  • SuperGuide Premium
  • Subscriber feedback
  • Sitemap