Insurance Inside Superannuation

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Did you know: your super fund can pay for some of your insurances?

Well, it can. And it can be very helpful for your monthly budget.

Types of Insurance Available Inside Super

Inside super, you could have three types of insurance:

  • Life insurance. If you die, your super fund receives the benefit, which can then be paid to the person you nominate as a beneficiary, such as your partner or children. This is often combined with TPD in one policy. Chances are if you already have a super fund you may have some ‘default’ level of life insurance.
  • TPD (“any” occupation). TPD stands for total and permanent disability. Basically, your super fund will receive an insurance payment if you suffer a serious disablement, like a major stroke, and cannot return to work. “any” means that the test for whether or not you can return to work is applied to “any” job.

For example, Sonkin is a carpenter and falls from a height, paralysing him and making him unable to work “any” job. Sonkin’s super fund will receive the TPD payment from the insurer and transfer the amount into his account, which he can apply to receive.

  • Income protection. Income protection can provide a regular (usually monthly) income if you suffer an injury or illness which prevents you from working. This can be very handy for anyone who is the primary breadwinner. For example, tradies playing competitive sport on the weekend who injure themselves and are unable to return to work. This insurance often covers you for up to 75% of your wage, often for two years, but sometimes until age 65. Waiting periods between two weeks and up to two years are common.

Pros and Cons: Insurance inside Super

Cashflow. Insurance premiums are paid out of your super balance, so your monthly budget won’t be affected by your cover.No tax deductions for you. Often, the bill for income protection can be claimed as a tax deduction against your income. If you have income protection inside super, you won’t be able to claim it.
Typically, your insurance continues for as long as you are a member.Claiming benefits. Your super fund will only let you get access to the insurance money if you meet a condition of release (note: permanent disability and death are conditions of release).
Cost effective. Sometimes, life insurance policies are cheaper inside super because they are based on the ‘average’ or ‘standard’ person. For example, if you are a high-voltage electrician who smokes a packet a day, have a poor medical history and love deep-sea diving — basing the price of your insurance policy on the ‘average’ person might be cheaper than if you applied under your own name!There may be a delay in you or your beneficiary making a successful claim.
For the ‘default’ level of cover, you may not need to have a medical. No more “trust me, I’m a doctor” for you!Paying premiums from your super account may reduce your retirement nest egg.
For complaints about your super fund, you can refer to the Superannuation Complaints Tribunal. 

Check your insurance cover

Log into your super fund’s member account, or call them, to find out what insurance cover you currently have in place. You may be doubling-up on cover inside and outside of super. Removing one of them could save you hundreds of dollars.

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Owen Raszkiewicz

Owen Raszkiewicz

Owen is the Founder of Rask Australia, Lead Investment Analyst for Rask Invest and head educator at Rask Education. Prior to founding Rask, Owen was an investment analyst at the highly regarded managed funds research business Zenith Investment Partners and a Writer/Analyst for The Motley Fool Australia. Owen’s formal qualifications include a Master of Applied Finance and Master of Financial Planning from Kaplan Professional, Bachelor of Technology (Information Systems) from Swinburne University of Technology, Advanced Diploma of Financial Services (Financial Planning) and Diploma of Mortgage Broking Management. He's also completed level 1 of the Chartered Financial Analyst (CFA) program.

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