Super funds with the lowest fees for income protection insurance

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Paying too much for Income Protection insurance inside your super fund can cost you dearly, eating into your retirement savings without necessarily improving your cover.

Income protection (IP) insurance (sometimes called salary continuance insurance) is available through about a third of super funds as default cover. It is one of three kinds of insurance available inside super, alongside life and TPD, but it is the least common.

What does income protection cover?

Income protection insures against the risk that you are unable to earn an income for a specified period (this might be 2 years, 5 years or up to a certain age) due to an injury or illness. However, IP does not cover you for  redundancy.

Super funds vary in their terms and conditions, but generally you can get IP if you are under age 65 and at least age 15.

The maximum amount you can insure is 85% of your pre-tax (and pre-disability) salary, or up to a monthly figure of $25,000 or $30,000 typically. That 85% would include an amount for super, which would be paid into your super account, while the rest of the benefit is paid to your bank account.

Understand your existing cover

There have been big changes to insurance in super over the past two years, with a flurry of legislation including the Protecting Your Super and Putting Members’ Interests First.

This followed findings by the Productivity Commission and others highlighting a high number of unintended or duplicate policies and a general lack of awareness by fund members about the type and level of cover held.

Following these legislative changes, research by KPMG forecast that fewer members holding insurance cover would push up premiums for everyone else by up to 26%. Unfortunately, they were right.

What’s more, since then the large number of members taking advantage of temporary rules allowing the early release of super due to COVID-19 means the level of insurance cover inside super has dropped even further.  

The cost of IP rises sharply

According SuperRatings’ latest annual survey of insurance premiums in super, the cost of income protection has increased far more than life or total and permanent disability (TPD) cover.

SuperRatings head of market insights, Camille Schmidt says the pool of insured members has decreased due to legislation which has reduced revenue and put pressure on premiums for existing members as a result.

“So far we have seen small increases across life/TPD premiums but material rises are evident for IP.” She puts this down to IP already containing a smaller pool of members than life/TPD, “as well as the rise in mental health claims which seem to be impacting IP more than death/TPD.”

Premiums vary widely

To gauge market trends, SuperRatings surveys IP premiums for four groups – male and female non-smokers in white collar jobs aged 45 and 55.

Premiums vary widely depending on a range of factors including your age, gender, smoker or non-smoker status, and the risk rating of your occupation. So a young female non-smoker who works in an office will pay less than an older male smoker who works on construction sites.

Premiums also vary depending on whether you have default cover attached to your super account or you take out voluntary cover.

SuperRatings found that average premiums for IP for the four groups surveyed increased between 23.7% and 25.9% in the 13 months to 31 October 2020.

The smallest average increase was for 45-year-old females, up 23.7% from $9.02 per $1,000 in cover on 30 September 2019 to $11.15 per $1,000 cover by 31 October 2020. The biggest increase was for 55-year-old females, up 25.9% from $19.76 per $1,000 in cover to $24.88 per $1,000 in cover over the same period.

Average premiums were significantly lower for men the same age, at $7.47 per $1,000 in cover for 45-year-olds (compared with $11.15 for women) and $17.36 per $1,000 cover for 55-year-olds ($24.88 for women).

Even so, the cheapest providers have kept premiums steady. This may be a bid to retain and attract members, although Rice Warner insurance consultant, Caroline Chikomba says it may be that we can expect additional premium changes to come through in the next 12 months as many funds are still withing a rate guarantee period. She says it is common for super funds sign up for group insurance with an insurance provider for a specified time – it might be two or three years – with a rate guarantee for that period. Premiums are renegotiated when the guarantee period ends.

In 2020 Christian Super offered the cheapest IP premiums for men and women, regardless of age.

As with most financial matters, it pays to be informed. In the tables below you can discover which super funds offer the lowest rates for income protection insurance, and we’re grateful to SuperRatings for providing this information. Average premiums for each category are included so you can how your existing IP cover compares.

Note that all lists are based on a white-collar employee. Premiums for ‘hazardous’ occupations are generally higher and cover may be limited.

Super funds with lowest income protection insurance premiums: 45-year-old female

Source: SuperRatings

Super funds with lowest income protection insurance premiums: 55-year-old female

Source: SuperRatings

Super funds with lowest income protection insurance premiums: 45-year-old male

Source: SuperRatings

Super funds with lowest income protection insurance premiums: 55-year-old male

Source: SuperRatings

Disclaimer: The information used in compiling this data comes from sources considered reliable and is not guaranteed to be accurate or complete. This information is general in nature and is not intended to be a recommendation for a particular financial product, or a type of financial product in general. We recommend you seek independent financial advice before making a decision on a financial product.