08 Oct Article: Insurance Through Super!
Insurance through Super – Is well worth considering !!!
Most super funds offer life insurance for their members. If you’re reviewing your life insurance, check what cover you have through your super fund so you can compare it with other options.
Here we explain what types of life insurance you can get through your super and the pros and cons of this type of insurance.
What types of life insurance are offered by super funds?
Super funds typically have three types of insurance for members:
- Death cover (also known as life insurance) – is part of the benefit your beneficiaries receive when you die, either as a lump sum or as an income stream.
- Total and permanent disability (TPD) cover – pays you a benefit if you become seriously disabled and are unlikely to ever work again.
- Income protection (IP) cover – pays you an income stream for a specified period if you can’t work due to temporary disability or illness.
Your employer’s default super fund will generally provide you with death and TPD cover. This basic cover may be available without health checks. You can usually increase, decrease, or cancel your default insurance cover.
Your super fund’s website will have a product disclosure statement (PDS) which explains the insurer they use and details of the cover available.
Like other insurance policies, you will pay insurance premiums. If your insurance is through your super fund, the premiums are deducted from your super account balance.
Cancellation of insurance on inactive accounts
From 1 July 2019, super funds will cancel insurance on accounts that haven’t received contributions for at least 16 months. Your fund will contact you if your insurance is about to end.
If you want to keep the insurance, you must tell your super fund or make a contribution to that account. You may want to keep your insurance if you don’t have any through another fund or insurer and you have a particular need for it (e.g. you have children or other dependants or work in a high-risk job).
Why get life insurance through your super?
There are benefits in getting your life insurance through super:
- It’s often cheaper because super funds purchase insurance policies in bulk
- You can get the cover you need for you and your family, even if money is tight
- It’s easy to manage because premiums are automatically deducted
- Some funds automatically accept you for cover without requiring a health check
- You can usually choose the amount you want to be covered for
However, you also need to be aware that:
- Limited cover – The types of insurance, and level of cover, may be limited. Cover is not tailored to your circumstances and exclusions may apply. If you want more insurance, you can apply to increase your cover and a medical may be required. If you want a different type of cover, you may need to get this outside super. Check the PDS carefully.
- Not portable – If you change super funds; have an extended absence from your employer; your employer’s super contributions stop or your account balance drops below a certain amount, your cover may cease and you could end up with no insurance. Always read the information sent to you by your super fund as they may be alerting you to changes to your cover.
- Slower to pay – There can be delays in receiving benefits as the insurer pays the benefit to the fund first, who then distributes it to you or your beneficiaries.
- Who gets paid – If you do not make a binding beneficiary nomination, or your fund does not offer binding nominations, the super trustee will decide who gets your benefits when you die, although your nomination will be taken into consideration.
- Ends at around age 65 – Life insurance coverage through super ends when you reach a certain age (usually 65 or 70). Policies outside of super may cover you for longer.
- Reduces super balance – The cost of insurance premiums are deducted from your super balance, reducing the money available for your retirement.
- Multiple super accounts – If you have more than one super account, you may be paying premiums on multiple insurance policies. This could reduce your retirement money, especially where you can only claim on one policy. Find out if you are able to claim on more than one policy, and consider which policy you might cancel. Even if you can claim on more than one policy, consider whether you need more than one policy or whether you can get enought insurance through one fund.
- Premiums may increase when you change jobs – Even if you stay with the same super fund when you leave your employer, you may be moved to the personal division of that fund which could increase your premiums for the same cover. Some funds default members as smokers or blue-collar workers when they move between divisions of funds, which could significantly increase premiums, and further reduce your retirement money. Check your annual statement to see how you have been classified, and contact your fund if you think the incorrect classification has been given to you.
You may opt for some cover through your super fund, and some cover directly from a life insurer, depending on the cost and the type of cover you need.
Check your life insurance cover before changing super funds
Before switching or consolidating super funds, make sure you can get the death, TPD or income protection cover you want, in your chosen fund. Be particularly careful if you have a pre-existing medical condition or are aged 60 or over, as you may not be able to get insurance again without health checks. Seek financial advice if you are unsure.
How to check the insurance you have through super
To find out what life insurance you have with your super, either call your super fund, check your annual super statement or access your super account online to check:
- what type of insurance cover you have
- how much cover you have, and
- how much you are paying for the cover.
You should also find out how your super fund is calculating your insurance premiums. For example, if your super fund has classified you as a smoker or blue collar worker, and these risk characteristics aren’t relevant to you, you could be paying more for your insurance than you need to.
You may need to call your super fund to check how you’ve been classified as your annual statement may not provide this detail.
What if you have no insurance through super?
If you discover that you have no insurance through your super fund, and you think you should have cover, call your super fund to find out why and discuss your options.
Claiming on insurance through super
There are some important things you need to know if you’re making an insurance claim through super.
Making a claim
To make a claim for insurance through your super fund you will typically need to submit a claim form. If you die, your estate or dependants should contact the super fund to find out how to claim death benefits.
Most super funds provide claim forms on their websites or you can call them and ask them to send you one.
When you make your claim, you may be asked to provide documentation that proves your condition, including medical reports. There may be waiting periods in some cases.
Some funds will allocate you a claims officer to be your point of contact if you have any questions during the claims process.
Unhappy with your super fund’s claims process?
If you’re unhappy with the claims process or unhappy because your claim is not accepted, complain to the super fund using its formal complaints process. Your super fund’s website should have details about how to complain. If not call and ask about the process, or look in the product disclosure statement.
If you’re not satisfied with the outcome, take your complaint to the Australian Financial Complaints Authority (AFCA). AFCA will generally not consider the matter unless you have used the superannuation fund’s internal complaint process first.
AFCA replaced the Superannuation Complaints Tribunal (SCT) on 1 November 2018. Complaints lodged with the SCT before this date will still be dealt with by the SCT.
You do not need a lawyer to complain to your fund or to AFCA. Of course, you may find it helpful to use a lawyer or other professional adviser if you think the benefits outweigh the fees.
Industry Code of Practice
An Insurance in Superannuation Voluntary Code of Practice started on 1 July 2018 to improve the consumer experience of insurance in superannuation. If your fund’s trustee agrees to comply with the Code, you should get better disclosure and claim and complaints handling. Your fund trustee should notify you if it is complying with the Code. You can check this on your fund’s website.
To decide if insurance through super is right for you, work out how much cover you need, whether your super fund will offer you this cover, and compare the costs and conditions with other insurance providers.
Moneysmart.gov.au. (n.d.). Insurance through super | ASIC’s MoneySmart. [online] Available at: https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/insurance-through-super [Accessed 12 Aug. 2019].