Mixed results: Superannuation and life insurance

If you have superannuation, then it is likely you also have some form of super life insurance. By law, it is compulsory for all employer super funds to provide members with life insurance and total and permanent disability (TPD) insurance. The level of cover, however, will vary depending on your fund and your circumstances.

In 2018, a federal parliamentary report found almost 64 percent of active life insurance policies were held through superannuation. However, this figure dropped significantly after the Federal Government introduced changes to who qualifies for default insurance.

A report by the Association of Superannuation Funds (ASFA) found that the number of Australians insured for death benefits through superannuation had fallen by 36 percent, with a similar drop for total and permanent disability (TPD).

So what does this mean for you? Should you be worried about your life insurance level?

 

Changing life insurance

The Putting Members’ Interest First (PMIF) Act 2019 ushered in new rules governing the way life insurance is offered or incorporated into superannuation. Under the changes:

• • You will no longer automatically have life insurance if your account is inactive for 16 months
  • Life insurance will not be provided if your balance is below $6000
  • If you’re a new super fund member and aged under 25, you won't automatically have life insurance in your super unless you request it

The last two won’t apply if you work in a dangerous job and your fund chooses to provide automatic cover, or if your employer pays for your insurance.

The government introduced these changes to protect retirement savings from being eroded by insurance costs that may not be necessary. If you’re under 25 and being slugged about $160 a year for something you didn’t request, you might see the logic in these reforms.

If you were impacted by the above changes, you should have been notified by your superannuation fund, as required by the Australian Securities and Investments Commission (ASIC). If you haven’t been, get in touch with the fund to check your options.

Even if the changes didn’t affect you personally, it’s a good idea to take a closer look at what is covered through your superannuation fund.

 

 

Do all super funds have life insurance?

Most include life insurance, also called death cover, and total and permanent disability (TPD) insurance. Some also offer income protection insurance, which pays you a regular income for a specified period if you are unable to work.

The level of cover, however, can vary widely and while it is often more convenient to pay for life insurance through your superannuation, you may not be adequately covered for your needs. Weigh up the options and compare policies to determine if the life insurance you have is worth it. You may choose to increase or decrease the premiums you pay each month, or take out a separate life insurance policy altogether.

When reviewing your policy, make sure you pay attention to the fine print. Understand what is actually covered and what life insurance exclusions, such as pre-existing conditions, apply. You might discover that your current policy doesn’t provide the financial protection your family would need in the event of your death or permanent disability. Conversely, you may decide it is not worth the expense at all.

 

 

Should I worry about super life insurance?

It depends on your circumstances. If you’re young, healthy and happy with the amount provided through your superannuation fund, it is probably not top of mind. If you are older, have dependents and a large mortgage, you might want it to examine your options sooner rather than later. A regular check on life insurance cover should be done in the same way you review your health, home or car insurance.

In its report, ASFA estimated that the PMIF reform and other superannuation changes had cost Australians $665 million in death benefits and about $1.5 billion in TPD benefits in 2022-2023. CEO Mary Delahunty said the legislative changes had created a situation where many Australians were now without insurance, “with the near complete lack of default TPD cover for those aged under 25 a concerning issue that may have broader ramifications for the welfare system”.

If you have concerns about how your life insurance policy has been handled, lodge a complaint with us and we’ll help you handle it.