Life Insurance Policy

Rising Premiums for Life Insurance Inside Superannuation: What You Need to Know

Give your superannuation a check up with life insurance premiums on the rise.

Key Facts

  • Premiums of life insurance plans held inside superannuation have increased as of 1 July 2013, will also affect self-owned life insurance policies outside super.
  • Speak to an insurance consultant who can provide assistance in finding life insurance deals in the market.

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Most of you might be aware of the changes that are happening to the current superannuation system, as announced by the Federal Government in April 2013. For those of you who are feeling that you are not getting the most out of your super, there is no better time than now to get started. Consider giving your superannuation a check up to keep track of contributions, fees, taxes and premiums, if you have life insurance inside your fund.

Have you give your checked on the life insurance policy inside your super?

Life insurance policies, such as death and TPD cover, are often available as an automatic inclusion through your employer’s default superannuation fund. It is believed that many members are not aware of this fact and they may have multiple policies across different funds, paying for each policy without them even realising.

Premiums for life insurance held inside super funds are on the rise, some by as much as 50%. Large industry super funds, such as AustralianSuper and Rest, have increased their life insurance premiums as of 1 July 2013, affecting as many as four million members combined.

Even with the significant premium increase, life insurance through superannuation is still cost-effective. However, it is important to note that since many people forget premiums for super life insurance plans are funded through the balance on your fund, it will affect the total of your retirement savings over time.

Most Australians are Unsure Whether They Can Have Life Insurance Inside Superannuation

Superannuation reforms and super premiums increase in 2013

There are a number of changes with your superannuation to be aware of as part of the reforms that have been put in place on July 1 2013. If you’re someone that has always wanted to know more about their situation but still haven’t gotten around to it, now is the time to take action and take control of your superannuation and give your retirement funds the boost they need.

Some of the important changes to superannuation in 2013 that you need to be aware of include:

  • Increasing Superannuation Guarantee – Your employer is required to pay you superannuation guarantee, with the previous amount set at 9% of your salary. As part of the reforms, the minimum obligation is set to increase by increments of 0.25% starting from 1 July 2013 and 0.5% from 2015, to 12% by 2019.
  • ‘Lost Super’ accounts, now with the ATO – It is normal to have accumulated multiple super accounts over the years from changing jobs and going with your new employer’s nominated fund. From 1 July 2013, inactive super accounts with a balance of $2,000 or less are transferred to the Australian Taxation Office (ATO) for safekeeping. The balance threshold will increase to $2,500 on 1 December 2014 and to $3,000 on December 2016.
  • Cost of life insurance policies owned within superannuation will or has increased by up to 50% - Premium increase is being implemented across all types of super funds – large industry funds, retail and corporate funds, by as much as 50%. One of Australia’s biggest industry super funds, AustralianSuper, has increased its premiums by 40% for death and TPD cover and around 25% for income protection cover on 29 June 2013.

Why did life insurance premiums increase in 2013?

From 1 July 2013, Larger industry super funds, such as AustralianSuper and Rest, increased their premium rates by as much as 50%. According to John Collett, a personal finance writer for Sydney Morning Herald, one of the reasons why super funds are increasing life insurance premiums is due to higher increase in the number of claims in a weakened Australian economy. High insurance claims is also thought to have a strong correlation to increasing unemployment rates, as mentioned by the managing director of TAL, Jim Minto.

Life insurance premiums on the rise do not only affect policies inside superannuation, but also those owned separately. With policy lapse rates increasing, the Australian insurance industry is feeling the pinch of reduced future profit margins from the loss of customers (Oldfield, 2013).

How rising life insurance premiums will affect policies inside superannuation

Even with an increase of up to 50% on life insurance premiums for policies owned within super fund, it is still an affordable option to get cover in the event of death, temporary and permanent disability.

However, it is important to remember that life insurance within superannuation is not without its shortcomings. There are a number of different factors that you may want to consider when weighing up your cover options, such as:

  • Increasing insurance premiums and its effect on your retirement income - Your premiums are paid from the balance of your super, which will further erode your retirement savings with the increased costs of life insurance of up to 50%.
  • Limited features and benefits with basic cover - Life insurance cover within superannuation is often quite basic and not suitable for individuals looking for more comprehensive cover.
  • Complex claims process – With life insurance policies inside superannuation, you are not only required to satisfy the conditions of claim with the insurance provider, but also the conditions of release with the super fund trustee. These conditions are often quite strict and there may be a delay until you can receive the proceeds.

Therefore, it is worthwhile to consider life insurance outside of a superannuation environment. Not only will you have access to more comprehensive cover, but also the ability to access your insurance proceeds with ease upon a successful claim.

Keeping your life insurance cover outside superannuation affordable, even with rising premiums in 2013

If you are considering separate life insurance plans to your super fund, but are concerned about breaking your budget, check out the following tips to keep your cover affordable:

  • Compare multiple quotes – Make sure that you shop around and compare multiple policies as the benefits and features can vary greatly between providers. Avoid picking the cheapest policy on offer without taking the time to assess if it is providing adequate cover for your needs.
  • Consult with an insurance adviser to find competitive quotes – Insurance consultants can make the task of finding affordable cover tailored towards your needs much easier for you. They have the experience and knowledge of the market to be able to find the right policy options that are competitively priced while offering the necessary cover.
  • Your sum-insured – Life insurance policies outside of super will allow you to apply for larger sum-insured. It is still important to assess how much cover you actually need to avoid be over insured, so consider whether you can afford the premium payments long-term or you will be better of with a cover amount that is more appropriate to your needs and your budget.
  • Choice of features and additional options – Another benefit of owning your life insurance plan outside superannuation is access to a wide range of built-in benefits and additional features that you can tailor to your needs. Just remember that additional options will cost extra, so consider carefully which features can provide you with the greatest benefit, without costing you more than you need.
  • Payment frequency – In general, insurance providers allow you to pay for your premiums fortnightly, monthly, quarterly or yearly. Discounts are often provided when you choose to pay your premiums on a yearly basis.
  • Take out a joint policy with your spouse/partner – With life insurance outside super fund, you have the benefit of including cover for your partner under the same policy and you may also be eligible for a discount on your premiums.
  • Change your lifestyle and get rid of the bad habits – Changing your habits and lifestyle may not be such easy feat. But, when it comes down to unhealthy lifestyle and bad habits, such as smoking and excessive drinking, getting rid of them will not only benefit your health in the long run, but also from lower premiums.

With all the changes that are happening in the market, keeping on top of your superannuation is absolutely essential, no matter which stage you are in your career. If you are unsure whether or not you have default life insurance cover with your super fund, make sure you give your super a quick check-up. Chances are, you may already have minimum level of protection in place and you get to decide whether you would like to decrease or opt out from the policy altogether, if you are looking to boost your super balance and obtain comprehensive cover outside of super.

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Maurice Thach

An insurance researcher and writer for who loves finding an answer to the question "Am I covered for ________?" Maurice has also completed a Tier 1 Life Insurance and a Tier 2 General Insurance Certification under ASIC's Regulatory Guide 146. This means he can confidently provide general advice for life insurance and non-life insurance products.

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