When it comes to super, the accepted wisdom is that performance is the most important consideration. That means we often ignore another critical part of our superannuation.
Most super funds include life insurance along with total and permanent disability (TPD) insurance for their members. In fact, more than 70 per cent of Australians who have life insurance do so through their superannuation. Some funds also offer income protection.
So, is it the right option for you?
Suzie Brown, general manager of MLC Wealth at MLC Life Insurance, lists lower premiums, convenience and fewer health checks as the key advantages of insurance through super.
“Because super funds buy insurance for groups of people, they’re paying a wholesale price so often the premiums cheaper. Payments are automatically deducted out of your super, meaning you don’t have to pay out of your own pocket,” explains Brown.
“And as you get cover automatically, you don’t have to do medical or health checks.”
Jeff Thurecht, personal financial adviser at Evalesco Financial Services, says insurance through super is a good choice for anyone working in a high-risk industry.
“There are high-risk occupations that are hard to get cover for [such as construction, mining, demolition, policing and firefighting, or even window cleaning if performed at great heights], so it makes sense to take advantage of group cover,” he says.
One thing to factor in, however, is that insurance through super can reduce your retirement savings because the premiums are deducted from your super balance, explains Thurecht.
“The great thing about compound interest is having that money growing year on year for 40 years, but any dollar taken out is losing that compound benefit. That doesn’t mean it’s not a worthwhile investment; you just have to make a conscious choice,” he says.
While the insurance you receive in super is a good safety net, you need to be aware if it’s sufficient for your specific circumstances.
“Typically, the default levels of cover in insurance through super are set fairly low because they’re meant to be relevant for everybody,” Thurecht says.
“A good time to review your insurance is as soon as your financial circumstances change – whether it’s taking out a mortgage, having children or increased earnings in your job. You can then look at whether increasing it within your super is a good way to go.”
According to Brown, the sort of questions you should be asking are: What am I paying? Do you have me listed as a smoker? Is my high-risk occupation covered?
“Being classified as a smoker or any other incorrect information could be costing you a loading on your premium,” she adds.
Making a personal choice
39-year-old carpenter Brian Hayes, whose work is primarily on building sites, pays for liability insurance that covers him for any damage done to property or in the event of injury for which he’s at fault.
But he admits he’s not across the cover he receives as part of the insurance through his super. “It’s reassuring to know that I have the extra insurance, but I haven’t checked how much I’m paying in premiums or whether that’s the best option for me,” he says.
“Ideally, I’d like to have the largest possible super balance once I retire, but I’ll be exploring all my options before I make a decision on whether to stick with insurance through super or change to personal insurance.”
Thurecht says that for someone like Hayes, who is assessing whether to pay for insurance through their super balance or through personal savings, it’s important to remember that it’s all your money.
“Consider aspects such as the cost of policies inside or outside of super and whether there are any tax benefits (such as the tax deductibility of income protection) that may come your way,” he says.
And for those who might be looking to switch to a new super fund, first check whether you’re able to transfer the insurance and will continue to be covered.
According to Brown, approaching a new super fund through the lens of insurance will stand you in good stead. “When you’re consolidating or moving super funds, insurance needs to be a consideration,” she says.
“You need to be comfortable that the new fund provides cover for your occupation and your age. If you have pe-existing medical conditions, you may not be able to get the cover you want.”
Overall, if you’re unsure, you can start by talking to your super fund or contact us on (07) 4041 6777 for a tailored solution.
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at June 2021 but may cease to be accurate in the future.
NULIS is part of the group of companies comprising IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate (IOOF Group).
Opinions constitute our judgement at the time of preparation. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way.
To the extent that the information in this article is or contains advice, it does not take into account any particular person’s objectives, financial situation or needs. Before acting on the information, you should consider the relevant Product Disclosure Statement, consider the product’s appropriateness to you having regard to your personal objectives, financial situation and needs, and consider obtaining independent advice. The Product Disclosure Statement for the MLC Super Fund is available at https://www.mlc.com.au/personal/superannuation/products or can be obtained by calling 132 652 (Monday to Friday between 8am and 6pm AEST/AEDT). Returns are not guaranteed and past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the IOOF Group accepts responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.
