How insurance costs slaughter your super balance

Peter Terlato 21 December 2016 NEWS

health insurance premium rise

Increasing, wide-ranging premiums hurting retirees.

A new research report suggests average insurance premiums through superannuation are too high for some Australian workers, slashing hundreds of thousands of dollars off retirement balances.

Rice Warner’s Affordability Study: Group Insurance in Superannuation found average insurance premiums rose over the past three years, while there were significant increases in life and TPD premiums in 2015.

The study analysed default weekly premiums for 21 predominantly industry funds.

The greatest range in default weekly premiums for death and Total Permanent Disability (TPD) cover applies to heavy manual workers aged 55 ($2.53-$15.19 per week). These same workers also have the largest range for weekly income protection premiums ($2.63-$28.85).

The report surmised a 21-year-old heavy manual worker, paying average TPD and income protection premiums, will have a retirement balance of $1,518,122 - $265,000 less than if they had no insurance.

A white collar worker of the same age, paying average premiums, would be left with $1,607,270 - around 10% less ($176,000) than if they were uninsured.

However, if insurance coverage was restricted to between the ages of 26-55, the same heavy manual worker, paying average premiums, could bank an additional $200,000 in retirement savings.

On average, 25% of all members with insurance premiums deductions had no contributions to their super in the previous 12 months.

Rice Warner's analysis reveals IOOF (Portfolio Service: Personal and Pursuit), MTAA, FIRST Super and Mine Wealth + Wellbeing had the largest increases in life and TPD premiums in 2015.

IOOF, HESTA, LGIAsuper and Prime Super had the greatest rises in income protection premiums.

While group insurance through super has improved coverage, underinsurance still plagues Australians.

Submissions from Australia's leading superannuation bodies to a parliamentary inquiry into the life insurance industry found the level of disability cover and basic life insurance to be inadequate.

Purchasing or switching insurance policies? Research and compare to make an informed decision.

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