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Ask Finder: Is insurance through my superannuation good enough?

Posted: 10 May 2019 10:30 am

Many superannuation funds offer a basic level of life insurance, but how can you tell if that's enough?

Dear Finder,
I have life insurance through my super. Everyone tells me that it's not enough. Is this true?
Umbrella Ella

When it comes to default super that's provided with a superfund or from your employer, it's usually aimed to just be the bare minimum and in many cases, yes, it's not enough.

However, to be as accurate as possible, "enough cover" depends on both your situation and the actual superfund.

What does this mean?

To illustrate this, let's say you have default cover through Hostplus Super (a well-known fund). Let's also assume you're 40 years old, own your home and have a spouse and two dependent kids.

With Hostplus Super, the default insurance cover at the age of 40 includes $174,102 in death cover and $145,085 in TPD (total and permanent disability) cover.

So if you have a mortgage of $600,000 and two kids to raise, this default cover probably isn't enough. To be specific:

  • If you were to die, the $174,102 death cover and your spouse's income may not be enough to cover the rest of the mortgage.
  • If you were to become totally and permanently disabled, the sum of $145,085 may not make up for the income you could have earned between now and standard retirement.

On the other hand, if you don't have a mortgage or dependents, you may not need the death cover at all. But even then, the amount of TPD insurance in this scenario could be insufficient.

So what should I do with my super cover?

You have a few options, but the first step is to assess your own situation to determine how much cover you need and what type of cover you need. You can use online calculators or even speak to a life insurance adviser to help you figure it out.

If you need to change your cover amount, you can usually do so in the following ways:

  • With the same default insurer you already have. This may increase your fees or prompt another medical exam.
  • With a new retail policy, using the help of an adviser. You can fund this using your super contributions or make payments out of your own pocket.
  • Directly with an insurer. This is funded using money from your own pocket.

Super vs own pocket

How you pay for your cover has its pros and cons, so make sure you weigh up each option based on your situation. To get started, here's a rundown of the most common factors to consider.

Payment option
  • "Set and forget" – payment is automatically taken from your super balance.
  • Eats into your final retirement balance (by around 14-25%).
  • Fees for the default insurance will be deducted even if you stop contributing to your super fund.
Own pocket
  • You could get some tax benefits if you insure your income.
  • More control over the insurance product and level of cover.
  • Can cost more in some cases.

Ask Finder is a regular column where Finder's expert writers answer your questions. All rates and fees are correct at the time of publication and we only give general advice.

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