Why your super insurance might not cover what you expect
• Insurance, superannuation insurance,
If you have a superannuation account, there’s a reasonable chance you also hold life insurance through it, possibly without realising. Almost 10 million superannuation accounts have insurance attached to them, yet many members can’t say what they’re covered for, how much it costs or whether it actually suits their needs. Before assuming your default cover has you sorted, it’s worth unpacking some common misconceptions.
Misconception 1: “Everyone gets cover automatically”
Insurance through super doesn’t start automatically if you’re a new member aged under 25 or your balance is under $6,000, unless you contact your fund and ask for it, or you work in a dangerous job where your fund gives you automatic cover. If you’re younger or just starting out, you may have no safety net at all unless you opt in.
Misconception 2: “Default cover will be enough”
Default cover is a starting point, not a tailored solution. In particular:
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default cover may be lower than, or different from, cover available outside super;
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eligibility rules and exclusions can apply; and
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cover can stop if your account becomes inactive, your balance is too low, you change funds (unless arrangements are made to transfer or replace it) or you reach an age limit.
When reviewing your insurance, check whether there are exclusions or whether you’re paying a loading – this is a percentage increase on the standard premium charged to higher-risk people such as those with a high-risk job, a pre-existing medical condition, or those classified as smokers. If your fund has classified you incorrectly, you may be paying more than necessary.
Misconception 3: “My cover follows me when I switch funds”
Often, cover won’t follow you. If you switch superannuation funds, your insurance policy may not be portable, meaning the cover you had can lapse once you’re no longer a member. Some funds allow you to transfer your policy to personal ownership, but this may require health checks and the insurer could charge more to continue the cover. Consolidating accounts can also unintentionally cancel valuable cover, so always check before you act.
Misconception 4: “If I stop contributing, nothing changes”
Cover can change if your account isn’t active. By law, super funds cancel insurance on accounts with no contributions for at least 16 months. Some funds have their own rules and cancel insurance if your balance is too low. Your fund will typically attempt to notify you before changes happen, so it’s important to keep your contact details updated.
Misconception 5: “More accounts means more protection”
Holding multiple super accounts may simply mean multiple premiums quietly draining your retirement savings. If you have more than one super account, you may be paying premiums on more than one insurance policy, which reduces your retirement savings. Claim outcomes can vary between policies, and benefits aren’t always cumulative. Consider whether you need more than one policy, or whether you can get cover through one fund.
Misconception 6: “It’s always the cheapest option”
Premiums may be lower because super funds buy cover in bulk, but that doesn’t always translate to the best value. Cover may not be enough, or may change over time, and it also may not be cheaper than insurance you can buy elsewhere.
Where to from here?
Superannuation and insurance can be complex. Before you assume your default cover’s doing the job, speak with your professional adviser to review your policy, premiums and any gaps, so you know exactly what you’re paying for and whether it still fits your circumstances.
Source: https://moneysmart.gov.au/how-life-insurance-works/insurance-through-super