Comparing your super insurance to your life insurance

Most working Australians know they have a superannuation fund. But what many of us don’t know is that these funds usually provide some form of life insurance. In fact, 70% of life insurance policies in Australia are held with super funds – that’s more than 13.5 million policies.

Here’s what you need to know about superannuation insurance and how it differs from stand-alone policies (also referred to as 'retail' policies). 

How does superannuation insurance work?

It’s no secret that superannuation can be very confusing, so it’s easy to understand how many people may be unaware of their insurance benefits. Put simply, most super funds automatically provide a basic level of life insurance for their members. While super funds are now required by law to meet minimum standards of cover, most funds provide it anyway.

There are usually three types of life insurance offered within superannuation funds:

  • death cover
  • total and permanent disablement (TPD) cover
  • income protection cover.

If you're faced with a mental or physical illness or injury that stops you from working, superannuation insurance may allow you to claim. It’s important to note that you don’t necessarily need to be unable to work at all to access your insurance. You may be able claim if you’re simply unable to work at a role within your previous training and education experience.

The pros and cons of super insurance

There are many benefits to keeping life insurance within your superannuation fund, such as lower premiums and easy management. However, the biggest benefit is the scope of cover they provide.

Unlike retail policies, which usually exclude any previous medical issues from your cover, super funds won't check for pre-existing illness and injuries. This is important for two reasons. Firstly, it helps you avoid the rigorous process of medical examinations, questionnaires and applications; and secondly, it provides you with wider cover if your illness or injury ever stops you from working.

The best way to confirm your super insurance covers your injury or condition is to look at your policy’s product disclosure statement (PDS). This can usually be accessed via your fund’s website.

A drawback of superannuation insurance is that it often provides a far lower level of cover than retail policies. This means if you make a claim, you may only be eligible for a fraction of the amount you require to support yourself and your family. Most funds allow you to increase the level of your insurance cover within the fund. However you’ll usually have to go through the process of filling out medical histories like you would normally do when taking out a retail policy privately.

Should you choose life insurance inside or outside of super?

You might be wondering whether you should keep your life insurance automatically held through your superannuation fund or take out retail life insurance privately through an insurer. While there are many factors to consider, one of the most important is what type of cover you need.

To put this into perspective, let’s say Frank is applying for a retail policy. He tells the insurer he has previously had issues with his back, although it's not currently stopping him from working. The insurer agrees to provide TPD insurance, but excludes back injuries from his cover as it's a pre-existing condition. This means if Frank ever has to stop working due to a back-related injury, he won't be eligible to make a claim under his stand-alone policy.

In this case, Frank may wish to keep the automatic life insurance he has in his superannuation fund, as it covers him for any condition regardless of whether it's pre-existing or not. On most occasions, he simply needs to show that he was capable of performing his normal duties at work.

However, if Frank were a fit and healthy person with no previous conditions, it might be wiser to increase the level of your insurance cover within the super fund or separately take out retail life insurance privately through an insurer. Why? Because this will generally allow you to dictate the level of cover you want. Without any exclusions on his policy, Frank can plan the level of insurance cover he’ll need to support himself and his family in the event that he can’t work. Whereas the amount of automatic insurance he has within the super fund is set by the fund, and can be changed at any time.

Claiming from multiple life insurance policies

Many people don’t know that it’s possible to have multiple policies both within and outside your superannuation fund. You might want to do this if you find gaps in your insurance that could be complemented with a different policy. Provided you meet the requirements for all policies, it's possible to make a claim with two or more insurers simultaneously.

For example, Fiona has both superannuation and retail TPD life insurance – a decision she made after realising her super fund would only allow her to claim $100,000 if she could no longer work. Unfortunately, a knee injury forces her out of working in her area of training and education. Fiona makes a claim with both insurance providers. This allows her to receive two lump sum payouts, which enables her to continue supporting her family.

It’s important to note that one person can also be covered by several super funds at one time. In fact, the team at Maurice Blackburn have come across clients who were able to claim on more than a dozen of their existing policies – many they didn’t even know they had. This is why it’s important to have an expert team guiding you through the process of your claim. Not only does it make it far less stressful, but it ensures you're making the most of all your entitlements.

To make the right decision for your particular circumstances, you should look into the type of cover you have. This ensures your policy will provide adequate cover for you and your family if you ever need to make a claim.

Find out more about what you're entitled to with superannuation insurance.

Compare life insurance vs. super insurance

Share this article on: