Superannuation funds in Australia offer a variety of insurance options designed to protect you (and your family) from some of life's unexpected challenges. Understanding these insurance types can help you make the right decisions for your financial security. This article delves into each insurance type, highlighting their benefits and key considerations, so you can better navigate your options.

Why super provides insurance

Superannuation funds in Australia provide insurance as a vital part of their offerings, with the goal of boosting the financial security of their members. Including insurance within superannuation serves several purposes, making it an important aspect of financial planning and protection.

First and foremost, superannuation funds aim to offer comprehensive financial security to their members. By incorporating insurance, super funds offer potential financial protection from unforeseen events that could otherwise lead to financial hardship .

What makes this arrangement particularly appealing is its cost-effectiveness. Premiums are often lower compared to standalone policies and conveniently deducted from your superannuation balance, making them easier to manage. This setup provides an easy way to maintain essential coverage without the hassle of juggling separate policies.

Plus, super funds use their large membership base to negotiate favourable terms with insurance providers. This collective bargaining power can result in better coverage options and lower premiums for members, potentially enhancing the value of the insurance provided. One of the downsides of the inclusion of insurance within super is that it does eat away at your supers’ return. By paying for insurance within super, the premiums can reduce your overall super balance.

Another key benefit is accessibility. Many people may not seek out insurance independently due to a lack of knowledge or the perceived complexity of the process. By offering insurance through superannuation, funds aim to ensure that more members are covered, potentially providing a financial safety net that might otherwise be overlooked.

The types of insurance super funds provide

Here are the primary types of insurance that superannuation funds typically provide. It’s worth noting that super funds do not typically provide trauma insurance which can help support you through a critical illness or injury. This insurance is usually accessed only outside of super.

Life insurance

Life insurance, often called death cover, provides a lump sum payment to your beneficiaries if you pass away. This payment can help your loved ones cover immediate expenses such as funeral costs, outstanding debts, and ongoing living expenses . It helps provide financial stability to your family during a difficult time.

The amount of coverage and the conditions under which it’s paid can vary, so it's essential to review your super fund’s policy details.

Total and permanent disability (TPD) insurance

TPD insurance helps ensure you can maintain a reasonable quality of life despite a severe injury or illness that prevents you from earning an income. It provides a lump sum payment if you become totally and permanently disabled and are unable to work again.

This type of insurance can be crucial for covering the significant costs associated with long-term disability, including medical expenses, rehabilitation, home modifications, and daily living expenses.

Income protection insurance

Income protection insurance, sometimes known as salary continuance insurance, provides a monthly payment if you can’t work due to a temporary disability or illness. This insurance typically covers a portion of your pre-disability income, usually around 75%, and is paid for a specified period or until you can return to work.

Income protection insurance can potentially be helpful for maintaining your financial obligations, such as mortgage payments , bills, and other living expenses, while you focus on your recovery.

How to navigate your super insurance

To discover which types of insurance are available through your super fund, start by exploring your fund’s product disclosure statement (PDS) or member guide. These documents are typically found on your fund’s website or through your account portal. They provide a comprehensive overview of the insurance options offered, including life insurance, total and permanent disability (TPD) insurance, and income protection insurance.

For personalised assistance, contact your super fund’s customer service. They can offer detailed insights into your current coverage, explain the benefits and conditions, and guide you on adjusting your insurance levels to suit your needs.

Accessing or updating your insurance is easy with most super funds’ online account management tools. Through these platforms, you can opt in or out of coverage, modify your coverage levels, and review your insurance premiums.

Things to consider when choosing insurance

Before making any decisions on your super insurance, here are some considerations to think about.

Automatic coverage

Many superannuation funds provide automatic insurance coverage when you join, ensuring that you have a basic level of protection from the start.

However, it’s essential to review this coverage and adjust it to meet your personal needs and circumstances. You may need to increase or decrease your coverage, or opt out if you have adequate insurance elsewhere.

Tax implications

The premiums for insurance within superannuation are generally tax-deductible to the fund, which can provide tax advantages compared to holding insurance outside of super.

However, you may encounter tax implications for the benefits paid out, so it's important to understand how these can affect your financial planning. For anything tax-related, we always recommend reaching out to a tax accountant who can help you figure out your tax obligations.

Reviewing and customising your insurance

Regularly reviewing your insurance coverage within your superannuation is crucial. Life changes such as marriage, having kids , or changes in employment status can significantly impact your insurance needs.

Most superannuation funds allow you to adjust your coverage levels, so ensure that your insurance keeps pace with your life’s changes.

Super and insurance

In a nutshell, understanding the various insurance options within your super fund is crucial for financial planning and ensuring you’re not paying for something you don’t need. Delve into your fund’s product disclosure statement (PDS) or member guide, and make the most of online account management tools to tailor your coverage to your specific needs. And by regularly updating your insurance, you can ensure it adapts to your evolving life circumstances.

Lastly, if you ever need help deciding on the right financial moves for your situation, get in touch with a financial adviser. They can provide advice tailored to your needs and support you in choosing an insurance (inside or outside of your super) that’s based on your individual needs. Plus they can help you in untangling the complexities around super and insurance.