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Life insurance through superannuation

Most super funds automatically include life insurance through super - but is it worth it?

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Life insurance is often included in your superannuation by default. Its often a more affordable alternative to standalone insurance but it's not compulsory and you can remove it if it's not right for you. Continue reading to find out how.

Compare life insurance and get quotes in Australia

Data indicated here is updated regularly
Name Product Maximum Cover Maximum Entry Age Minimum Cover Terminal Illness Benefit
AAMI Life Insurance
$1,500,000
65
$100,000
$1,500,000
Existing AAMI car & home insurance customers or family policies can get a 5% discount.
Real Family Life Cover
$1,000,000
64
$100,000
$1,000,000
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
NobleOak Life Insurance
$15,000,000
69
$50,000
$3,000,000
First month free for NobleOak Life Insurance. T&Cs apply.
ahm Life Insurance
$1,500,000
65
$100,000
$1,500,000
ahm Health members can save 10% off premiums.
Guardian Life Insurance
$1,500,000
64
$100,000
$1,500,000
Zurich Ezicover Life Insurance
$1,500,000
69
$50,000
$1,500,000
Get your first month free. T&Cs apply.
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What is life insurance inside superannuation?

Superannuation life insurance is insurance that is usually automatically included when you open a super account. It's generally available without medical checks and premiums are deducted directly from your super balance. Super funds usually offer three types of life insurance. These are:

  • Life cover. Sometimes also referred to as death cover, this type of insurance usually pays a lump sum to your beneficiaries when you die or become terminally ill.
  • TPD insurance. This usually pays you a lump sum if you become seriously disabled and are unable to work again.
  • Income protection insurance. This pays you an income, usually in the form of a monthly payment, for a specified period of time - often 2 years, 5 years or up to a certain age - if you can't work due to illness or temporary disability.

It's most common for super funds to automatically provide you with life cover (death cover) and TPD insurance. Some provide income protection insurance as well though.

How does superannuation life insurance work?

Premiums are usually deducted once a month from your super fund, in exchange for some kind of life insurance protection. The life insurance cover you get is usually a form of death cover (insurance that pays out to your beneficiaries if you die) and sometimes total and permanent disablement cover. It's usually cheaper than a stand-alone life insurance policy because it pays out significantly less. If you have a super account, chances are you have super life insurance. Cover is usually automatically included when you join a super fund.

Is super insurance worth it?

In most cases, no. Super insurance generally doesn't pay out as much as a standalone policy, exclusions often apply, it ends at around 65 and it's usually slower to pay. There's often a limit on the death benefit of around $100,000 to $200,000, which is ordinarily nowhere near enough to leave your family with when you take the mortgage, school fees and day-to-day expenses into account. Super insurance is only worth it if:

You have a medical condition

There are generally no medical exams needed with life insurance through super. Super insurance might be worth keeping if you have a medical condition or a dangerous job as a default super insurance plan might cover you automatically and help out with your claim if you're forced out of work at some point. If you cancel and reapply for insurance later on, you most likely won't be covered.

You can't afford life insurance

Premiums are deducted from your superannuation account balance rather than out of your own bank account. It will still cost you either way but you won't notice it coming out of your super. If you can't afford life insurance, this might be the way to go, as long as you're comfortable with losing money on your super.

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Fully underwritten with Trauma and TPD options. NobleOak offer up to $15 million maximum cover level.

Do I need insurance on my super?

No, life insurance inside super is not compulsory. From 1 April 2020, super funds are now required to cancel insurance on inactive super accounts that haven't received contributions for at least 16 months. Super funds can't automatically provide new members with insurance cover unless they are at least 25 years of age, or have a minimum super balance of $6,000. Your super fund will contact you if your insurance is about to end for these reasons.

If you want to keep your superannuation insurance, you'll need to contact your super fund to let them know or contribute to that super account. It might be worth keeping your insurance if:

  • You can't currently afford a standalone life insurance policy
  • If you have a medical condition or a dangerous job, a default super insurance plan might cover you automatically and help out with your claim if you're forced out of work at some point. If you cancel and reapply for cover later on, you most likely won't be covered.

How do I get life insurance outside of superannuation

You can buy life insurance outside of super. You'll usually pay a monthly or annual premium in exchange for a lump sum payment when you die. There a couple of ways you can do this:

  • Go through an adviser. This kind of cover is when you buy through an adviser. They'll assess your current financial situation, compare options from a variety of insurers and tailor cover to your needs. It means you get expert advice and knowledge, but you'll usually need to pay a little more because of that.
  • Find your own policy. You can also compare policies yourself and buy life insurance directly. You'll need to know what kind of cover you want and determine which one is right for you. It can be a little more time-consuming but because of that it's also usually cheaper than buying through an advisor.

Compare options for life insurance outside of superannuation

Name Product Maximum Cover Maximum Entry Age Minimum Cover Terminal Illness Benefit
AAMI Life Insurance
$1,500,000
65
$100,000
$1,500,000
Existing AAMI car & home insurance customers or family policies can get a 5% discount.
Real Family Life Cover
$1,000,000
64
$100,000
$1,000,000
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
NobleOak Life Insurance
$15,000,000
69
$50,000
$3,000,000
First month free for NobleOak Life Insurance. T&Cs apply.
ahm Life Insurance
$1,500,000
65
$100,000
$1,500,000
ahm Health members can save 10% off premiums.
Guardian Life Insurance
$1,500,000
64
$100,000
$1,500,000
Zurich Ezicover Life Insurance
$1,500,000
69
$50,000
$1,500,000
Get your first month free. T&Cs apply.
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Compare up to 4 providers

What are the advantages of life insurance inside superannuation?

Should you keep your super insurance? Review the pros to see if it's ideal for you.

  • It's usually cheaper. A super fund generally buys life insurance in bulk. It means that it can be an inexpensive way to purchase life insurance.
  • Easy to pay. It's really convenient - it's usually automatically included with your super and premiums are automatically deducted from your super balance.
  • Fewer health checks. Because the insurance is usually taken out as a group policy through the super fund, individual medical checks aren't usually required or as extensive. This can be helpful if you work in a high-risk job or have any health conditions as you might have difficulty getting cover elsewhere.
  • Tax benefits. Your employer's super contributions are taxed at 15% which is lower than the marginal tax rate for the majority of people, meaning you'll save money on tax.

What are the disadvantages of life insurance through superannuation?

Here are some of the cons to life insurance through superannuation.

  • Reduces your retirement balance. If there's money regularly coming out of your super, it's less money available for your super fund to invest, which'll eat into your retirement savings.
  • Ends at age 65 or 70. It usually doesn't last until when you need it. TPD insurance cover in super usually ends when you reach 65 and life cover at 70. If you buy a policy outside of super, you can usually maintain cover until you're 99 or for as long as you keep paying them.
  • The amount of cover is not what you need. As most super life insurance is bought as a group, the amount of cover may either be too much or too little without you being aware. In a nutshell, you risk paying into it all these years and not getting much back in the end.
  • If you change funds, your cover can end. It's common for us to change jobs these days, and with that we often change super funds. But if you do this, there's a good chance your cover will cease as you're no longer contributing, wasting all that money you spent.
  • Guaranteeing the beneficiary can be tricky. The Australian Tax Office (ATO) states that who receives the benefit will depend on the rules of your super fund and the requirements of the relevant regulations. To guarantee who the beneficiary will be, you need to contact your super fund and see if it's possible for them to change it to the person(s) of your choice.
  • You may have more than one account. If you have more than one super account, you could be paying premiums on multiple insurance policies. Not only will this eat into your retirement savings, but you might not be able to claim on multiple policies. According to the ATO, roughly 39% of Aussies have more than one super account. If this applies to you, be sure to review these policies and consolidate super where possible.

How does insurance inside super impact my super balance?

We've crunched the numbers so you see how much you're likely to lose over time with super life insurance.

FundInvestment return (pa.)Balance after 20 years (with insurance)Balance after 20 years (if opted out of insurance)Extra balance
CareSuper8.3%$461,027.02$481,507.75$20,480.73
Hostplus8.2%$466,906.23$476,482.38$9,576.15
RestSuper8.0%$439,078.98$466,618.67$27,539.70
EquipSuper8.0%$422,280.74$466,618.67$44,337.93
AustralianSuper8.0%$454,778.53$466,618.67$11,840.14
UniSuper7.7%$442,555.75$466,618.67$24,062.92
AustSafe Super (Sunsuper)7.7%$456,129.76$466,618.67$10,488.91
BUSSQ MySuper7.6%$420,589.53$447,096.84$26,507.31
Cbus Industry Super7.6%$418,831.59$466,618.67$47,787.08
HESTA7.6%$438,619.15$447,616.60$8,997.45

Can I remove insurance from superannuation?

You can remove insurance from super at any time. Just get in touch with your super fund or check your super's online platform. Before you cancel though, it's worth taking the following into account:

  • Consider your life stages and what you need. For instance, if you are young and have no dependents you won't have much use for death insurance but you may need to consider income protection. Decide what you need covered and how much.
  • Keep cover, modify or cancel. Keep cover if it's suitable for your situation. Choose between super insurance or standalone cover. Cancel if you really have no need for it.
  • Review regularly. Your life insurance needs in five years will be different to what they are now.

How do you get life insurance through superannuation?

Most super funds will automatically provide you with life insurance when you open a super account. This means that when you start a new job, or first opened a super account, you've probably been paying premiums towards some kind of life insurance.

Most of the time, this life insurance will be life cover and TPD insurance. Less commonly, your super fund will automatically provide income protection insurance. It's usually capped at a specified amount but doesn't come with medical checks like other types of insurance.

How are premiums paid?

The premiums for life insurance through super are deducted from your superannuation account balance, not your own bank account. This is one of the reasons life insurance through super can be convenient for some people - it's easier on your immediate cash flow. If you have a mortgage to pay, a family to feed, or other financial commitments, you won't have to worry about life insurance premiums coming out of your bank account. Having said that, it's still costing you regardless, plus it's taking money away from your retirement fund.

If you stop paying into your super, your life insurance cover can end. As part of new legislation starting from April 2020, people aged under 25 will no longer automatically receive life insurance cover either. Insurance will also be cancelled on super accounts with balances less than $6,000.

How do I know if I have got life insurance inside my super?

To find out if you have life insurance inside your super, you can:

  • Call your super fund and enquire with them directly
  • Login to your super account online
  • Check your super fund's annual statement or product disclosure statement (PDS)

This should give you access to the type of insurance you have, as well as how much cover you have and how much you're paying for it.

If you've ever had more than one super account, you may have more than one life insurance policy. To be sure, get in touch with all of your super funds and see if you have an active account and life insurance policy with them. Having more than one life insurance policy is usually pointless, as you're effectively paying for the same thing more than once; you might not receive both payouts.

How is life insurance paid out through super

Your will doesn't decide who your superannuation goes to in the event of your death. It's a similar case with superannuation life insurance.

If you don't specify who you want to receive your life insurance payout, your super fund gets control in deciding who does. To ensure this doesn't happen, you'll need to make a nomination. This nomination can be binding or non-binding; it's worth knowing the difference.

Binding death nominations. This is a written notice given to the trustee of your super fund which nominates a beneficiary for your super life insurance benefit.

Non-binding death nominations. This isn't as explicit as a binding death nomination. Super funds are not obligated to follow your wishes if they think there's someone who else would be a more appropriate recipient.

Can you add insurance to existing super?

It depends. If you can, you will usually need to answer health and lifestyle questions. The reason life insurance inside super is generally cheaper than standalone policies is that it's essentially a one-size-fits-all. That means if you wanted to increase your coverage, you'd probably need to answer questions about your health.

If you want more comprehensive life insurance, standalone cover might be a smarter way to go. It can provide the following benefits:

  • Cover that specifically meets your needs.
  • The choice to pay stepped premiums or level premiums. Stepped premiums usually start out cheaper but increase over time, while level premiums are initially more expensive but often more sustainable over time.
  • Cover doesn't stop at a specific age. It generally continues as long as you pay the premiums, or at least has a much older age limit, e.g 99 compared to 70 with life insurance through super.

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4 Responses

  1. Default Gravatar
    ASAJILEMarch 31, 2017

    When should an insurance be unnecessary in superfund?

    • Avatarfinder Customer Care
      ZubairApril 3, 2017Staff

      Hi ASAJILE,

      Thank you for your question.

      finder.com.au is a comparison and information service and we are not permitted to provide our users with personalised financial advice or product recommendations. You should contact your super fund directly for clarification on this matter.

      All the best,
      Zubair

  2. Default Gravatar
    AllanNovember 7, 2016

    If you have two superannuation policies, one personal and the other where a % of your wage from your employer puts into , and both have a life insurance cover, can you stop one insurance cover and use the premium amount to bolster your super contribution’s.

    • Avatarfinder Customer Care
      MauriceNovember 8, 2016Staff

      Hi Allan,

      Great question. In some cases, you can consolidate the cover of two policies together. However this will depend on the specific conditions of the two policies.

      It’s a good idea to get in touch directly with your insurer or a financial adviser.

      I hope this helps,

      Maurice

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