Insurance in super - is your cover adequate?
Written on the 26 November 2017 by Arrow
If you've got super you probably have some life insurance included. It's an easy way to get a basic level of cover, but is it enough to give you and your family true peace of mind?
More than 70% of Australians hold life insurance policies, more than 13.5 million separate policies, through their super funds.i Yet despite this, underinsurance remains a huge problem in Australia.
Rice Warner estimates that the median level of life cover in super meets only 60% of the basic needs for the average household and less for families with children. The position is even worse where total and permanent disability (TPD) and income protection cover are concerned. The median level of cover in super will provide just 13% of TPD needs and 17% of income protection needs.
Of course, some insurance is better than no insurance and insurance in super is convenient to set up and pay for. But it comes with a couple of points to be aware of and this is where professional advice is invaluable.
Firstly, a portion of your super is used to pay the insurance premium. This can help your cash flow if money is tight, but it also means you may not be contributing as much to your retirement savings as you thought.
It's also worth keeping in mind that super funds offer standardised 'off the shelf' policies that may not suit your needs. This helps keep costs down, but that's no consolation if your policy falls short when you need it most.
Because the insurer pays your super fund which then pays you, it may take longer to receive the money. What's more, unless you make a binding nomination the fund trustees have the ultimate say in who receives benefits when you die. Your beneficiaries may also be taxed more heavily than they would if you held the insurance outside super.