How it works

Most people with superannuation have insurance cover attached to their superannuation account. If you join a fund through your employment, you will usually have automatic cover put in place once the fund receives Superannuation Guarantee contributions from your employer.

If your super fund offers an appropriate level of cover for your needs, it can be a really simple and cost-effective way to insure yourself and your family.

The main insurance types offered by superannuation funds include:

If you hold life insurance (also known as death cover), the beneficiaries you nominate on your policy – usually your family – receive a benefit in the event of your death. Depending on the rules of the super fund, this money can be paid to them either as a lump sum or as an income stream, and provides them with financial support to ensure they can continue paying the bills after you’re gone.

TPD insurance provides a financial safety net if you become seriously ill or permanently disabled and are no longer able to work. TPD insurance is designed to help cover the costs of rehabilitation as well as support the future cost of living.

IP insurance provides you with income for a certain period if you can’t work due to a temporary disability or illness. Unlike Life or TPD insurance, IP insurance covers you just for the income lost through your inability to work. For families or individuals who rely heavily on one income to meet expenses, IP insurance can be an extremely important consideration.

Again, each policy differs in how it defines disability and illness and the type of benefits offered, so it’s important to make sure you fully understand what you’re getting.

Generally, IP insurance will offer coverage up to a maximum of 75 per cent of your wage for a maximum amount of time – this could be two or five years or until you’re 65 (or even older). It’s important to note that you can only claim on one income protection insurance policy.

Do you need it?

Planning for the unexpected is a necessity of life.

Choosing life insurance is a big decision and you need to be realistic about how much cover you need. Consider factors such as:

  • how much debt you have
  • how much your family will need to maintain their lifestyle both now and in the future
  • what conditions are covered (or not covered) by the policies you’re considering

If you become totally and permanently disabled, having the right insurance behind you can provide safety and security for your family during life’s hardest moments.

On the other hand, premiums for insurance cover will decrease the amount of retirement savings you might achieve.  If you do not have dependants or a mortgage you may not need much insurance cover, but even young single people can get injured or sick with TPD and IP insurance cover providing valuable benefits in such circumstances.

It’s worth considering that, if you have more than one superannuation account, you might be covered by – and paying for – multiple insurance policies.  This might result in more insurance cover than you want.  In this context, generally an individual can only claim a total of 75 per cent of their salary under income protection insurance even when they have more than one IP insurance policy.  As a result, some people with more than one IP insurance policy may not be able to claim the full amount insured. For death and TPD policies, it is generally possible for a claim to be made for the total amount provided by each policy.

ASIC’s MoneySmart website provides more information about things to consider when making decisions about life insurance in your super. View here

Many superannuation funds have calculators to help you work out how much insurance cover you might need.

Your options

Your insurance in super won’t be affected by these changes

Option 1

Choose to keep your insurance. Right now, if you want your insurance cover to continue, you need to contact your fund before your account has been inactive for 16 months and let them know. Talking to your fund over the phone may help you come to a decision about your insurance cover, but your express choice should be made to the fund in writing or by electronic means.

This can involve sending an email, responding to a text message from your fund, or filling in a form on your fund’s website.

If you want to increase your insurance cover, it’s a good idea to visit the website of your fund to see what options you have in regard to insurance cover and what the cost would be of increasing your insurance cover.

Option 2

Choose to let your insurance lapse on your inactive account (you do not need to do anything once you’ve made this decision). If you have an active superannuation account, the insurance with that super fund will not be affected.