Smarter Super - Invest in your future and make the most of your retirement

Important Notice

This booklet gives information of a general nature and is not intended to be relied on by readers as advice in any particular matter.

You should consider consulting a financial adviser regarding how this information may apply to your own circumstances.

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INSURANCE FOR LIFE

A young father holding the hands of his son who is sitting on his shoulders and looking up to the sky

WHAT ABOUT INSURANCE?

Accidents, serious illness and death can happen to anyone at anytime. Having insurance for these events gives peace of mind that you or your family have some protection from the consequences of the unexpected.

Many super funds offer insurance cover for their members – usually death and Total and Permanent Disability (TPD) and sometimes income protection, as explained in the table below.

Type of cover	What it provides
Death	Your beneficiaries may receive a lump sum payment or income stream upon your death.
Total and Permanent Disability (TPD)	You receive a lump sum payment once the insurer has accepted your claim for total and permanent disability. You also need to satisfy a superannuation ‘condition of release’ which allows you to access the payment.
Income protection	You receive an income stream for an agreed period upon confirmation of your inability to work due to temporary disability or illness.

Accessing insurance cover through a super fund can provide advantages. Some potential advantages include:

Bulk discount: Insurance cover can be much cheaper due to the bulk discount available to super funds.
Tax advantages: Because premiums are paid from a member's super account, most of the money in this account will have only been taxed at 15%, rather than marginal tax rates. The money paying the premiums has been taxed less so there's more money to pay for a higher level of cover if desired.
Convenience: Premiums are usually deducted automatically from a member’s super account. This also means the added convenience of not having to deduct money from your household budget to pay for premiums.
Automatic acceptance: Often members are automatically accepted for basic cover which means they can be protected against death and/or disablement without having to answer health questions or undergo medical tests.

Did you know?

Life insurance is more affordable than many Australians believe. Securing both death cover and income protection for a 31 year old male, married with two children and earning $75,000pa would cost an average premium of $2.83 per day! ²

2. IFSA Securing Australians’ Financial Wellbeing 2007. Based on TNS Research.

Keep in mind there may be disadvantages of having insurance through a super fund. Some potential disadvantages include:

Limitations on the level of cover.
Limitations on benefit periods for income protection insurance.
Being uninsured. If you move between funds or your employer contributions to the fund cease or for some reason your super account becomes inactive, your insurance cover may lapse without you realising.
Being overinsured. If you have more than one super fund, check to make sure you are not doubling up on premiums and paying for more cover than you need.
Delays in payments. There can be delays in payments to beneficiaries while the trustee identifies and resolves any other claims, such as a former partner or children from a previous relationship may be entitled to part of the benefit.

TIP

As a general rule, insurance can be used to meet the shortfall between your needs and existing savings. Some people take out death cover to pay out their debts and leave some money left over to help their family get back on their feet. It's a good idea to review your insurance needs from time to time to ensure your cover takes into account any life changes. You should consult your financial adviser who can assist you with your insurance planning.

GETTING THE RIGHT COVER

Many super funds offer ‘automatic acceptance’ for a basic level of cover for most active members, with an option for members to increase their level of cover. You might be happy with the cover provided by your fund or you might want to consider boosting it with additional cover either through your fund or outside of super. Working out the right level of insurance cover for your personal circumstances will help provide peace of mind to you and your dependants.

As a rule of thumb, full-time workers in their mid 30s with young children need at least 10 times their taxable earnings in cover.

CASE STUDY

INSURANCE

Dylan, 31 and his wife Brenda, 28 were saving for a new house for their growing family. Dylan was very concerned about his family’s capacity to cope financially should Brenda or he die. Dylan knew that he had some life cover through his superannuation fund, but he felt that this would not be enough for his family.

Dylan and Brenda decided to speak with a financial adviser. The financial adviser recommended that Dylan increase the sum insured through his superannuation fund to cover their mortgage, personal loan, debts and future expenditure. The financial adviser also recommended that they take out a term life insurance policy on Brenda’s life.

Then tragedy struck – Brenda was killed in a car crash, leaving Dylan to bring up two small children on his own. Dylan received a lump sum payment from his wife’s insurer, which was enough to buy the family home and make sure that their children had after school child care. Brenda’s term life insurance policy gave her family financial security.

CHANGING SUPER FUNDS

If you're thinking of changing super funds, be careful because the insurance cover from your old super fund will probably cease. You should ensure you're eligible for insurance at the level of cover required in your new fund before finalising your choice to switch super funds.

Before moving to a new super fund, you should consider:

Premiums can differ greatly between superannuation funds for the same level of cover. Before you change funds check to see if your new super fund offers insurance cover and make sure you compare what you’ll be paying for that cover.
Be aware that if you decide to purchase insurance outside super you could end up paying more. Because of the bulk discount super funds receive, cover through a super fund is often cheaper than purchasing insurance outside the superannuation system.
Be aware that you could be uninsured for a time. If you leave one fund and your cover ceases in your old fund, you may be uninsured for a period – particularly if your new fund waits until contributions are received or until a medical test has been completed before cover commences.
Be aware you could be overinsured. If you have more than one superannuation fund you should check to make sure that you're not paying for more insurance cover than you need.
Many employer or industry superannuation funds have an option for you to continue your insurance when you leave the fund, known as a ‘continuation option’. This option allows you to take out an individual policy on your own life within a specified timeframe, usually 30 days, after leaving the superannuation fund.

For more information about insurance, read 'Smarter Insurance: Protect your assets and secure your future' booklet available as part of this range of publications. Freecall 1800 009 180 for a free copy.

TIP

Are you underinsured? Underinsurance is when a person pays an insurer a premium for an insurance policy that doesn’t cover the financial impact on themselves or their family in the event of accident, serious illness or death. If you are underinsured you and your family may find yourselves in financial difficulty. Not having insurance or enough insurance can erode your savings and investments, deplete your assets or result in a financial crisis. Taking the time to make sure you have adequate insurance means that you’re not taken by surprise – at a time when you don't need any more stress in your life.

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