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The value of insurance through your super fund

2021-06-01 04:30

Most of us know the important role superannuation plays in building a retirement nest egg. And we understand the value of insurance cover in protecting our family and livelihood by ensuring we can still receive an income if something unfortunate happens to us. But less well known is that premiums are automatically deducted from your super account balance, rather than paying for the cover with cash. Here we explain how – and why – you would do this.

Insurance cover is important for a number of reasons, and can vary according to your life stage. There are three main types of cover that you can take out: life (or death cover), total and permanent disability (TPD cover, held with Death cover) and income protection (also known as salary continuance cover).

  • Life: If you have dependants, you can nominate them as a beneficiary to receive your life insurance proceeds, which could give them a lump sum or income stream if you die.
  • TPD: If you become totally and permanently disabled and are unlikely to work again, then TPD cover will pay you a lump sum benefit.
  • Income protection: This generally pays you a monthly benefit of around 75% of your income for a specified period if you are unable to work due to a temporary illness or injury.

Benefits of holding insurance inside super

One of the main reasons is how easy it is to make the premium payments because they are deducted automatically from your super balance. And because they are inside your super, your premiums may be more tax effective. This is because the super contributions your employer makes into your fund are taxed at 15%, which is lower than the marginal tax rate for most of us.

If you have an existing health condition or work in a job that is considered high risk, having insurance through your super may also be easier for you. This is because if you join your employer's default super fund, there may be fewer health checks. However, make sure you check the conditions to see if you will be paid in the event you need to make a claim and that you have correctly listed your occupation with your super fund.

Generally, if you're eligible, super funds will automatically provide you with life or TPD cover so if you don't want it, you need to let them know. Some funds may also automatically provide you with income protection cover as well.

If your super fund doesn't automatically provide you with insurance cover and you want to take it out, contact them and let them know (this is known as 'opting in'). The process is very simple and usually just involves filling out the required forms. You may be required to provide health evidence.

You should also note that if you're under 25 or your account balance is less than $6,000, any new super fund will not automatically provide you with insurance cover unless you request it in writing (opt in).

Why wouldn't you consider insurance inside super?

The main reason is that the cover you receive expires at a specified age. For example, inside super, life cover generally finishes once you reach 70; TPD insurance stops at 65; and your income protection benefits may only be provided for two years. These limits may not suit you. If you arrange insurance outside super (which will also require you to be underwritten and provide health evidence), you are usually able to be covered for as long as you pay the premiums.

Inaction can cause your policy to lapse

Be aware that super funds may cancel your insurance cover if your account is deemed inactive – that is where they haven't received contributions into your account for at least 16 continuous months. Your fund will inform you along the way if it is going to take this action so if you want to keep your insurance you'll need to tell your fund or make sure you continue to make contributions.

If your insurance cover has been cancelled because your account was inactive, you may be able to reinstate it, subject to the terms and conditions applied by the insurer. This may include providing health information.

Key considerations for insurance cover

It's very important to ensure insurance cover – whether inside or outside super – is adequate for your individual needs. Calculators such as the one here can help with working out appropriate levels of cover.

Some key points to consider include:

  • your other financial resources – such as shares, cash or property investments
  • the age of your children and the future cost of their education
  • your current levels of personal debt
  • how much you would need if you were injured and not able to work again, or how much your family would need if you were to die.

Because your circumstances change over time, these points need to be regularly reviewed to see if you need to increase or decrease the amount and type of insurance you hold.

Overall, insurance through super can be simpler and cost-effective but it's important to make sure your policies suit your circumstances. There is no point having a cheap policy if it doesn't deliver when you most need it.

Case study: The importance of income protection insurance

Jamie* is in his thirties and employed full-time. When he started work, he chose to have his super contributions paid into his employer's default fund: ANZ Smart Choice Super. Unfortunately, he was unexpectedly diagnosed with a condition that led to chronic pain and rendered him unable to work. Jamie's mental health began to deteriorate as he wondered how he was going to support himself.

However, Jamie learned that his super fund automatically included income protection cover, which replaces up to 75% of a person's insured income if they become partially or fully disabled as a result of illness or injury. There were some conditions, including a waiting period before the benefits were paid. Jamie's waiting period was 90 days which means a benefit doesn't become payable until after the 90 days, and is then generally paid a month in arrears. During this period he was well supported by his fund's relationship manager who helped him understand what he needed to do to make a claim.

The relationship manager submitted the forms prior to the expiry of the 90-day waiting period and managed to have the first month's benefit paid on the 91st day. This was one month earlier than usual as payments are usually paid one month in arrears.

Because of Jamie's condition, he is still having to claim on his income protection cover but the payments are coming through regularly. This has ensured his financial position is back on track and as a result, his mental health is much improved.

*Not his real name

The value of insurance through your super fund

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“ANZ Smart Choice Super” is a suite of products consisting of ANZ Smart Choice Super and Pension (PDF)ANZ Smart Choice Super for employers and their employees (PDF) and ANZ Smart Choice Super for QBE Management Services Pty Ltd and their employees (PDF). OnePath Custodians Pty Limited (ABN 12 008 508 496, AFSL 238346 RSE L0000673) (OPC) is the issuer of the ANZ Smart Choice Super suite of products. OPC is the trustee of the Retirement Portfolio Service (ABN 61 808 189 263, RSE R1000986) (RPS) and the ANZ Smart Choice Super suite of products are part of the RPS. You should consider obtaining financial advice before making any decisions based on the information. You should obtain a Product Disclosure Statement (PDS) relating to the relevant financial product and consider it before making any decision about whether to acquire or continue to hold the product. Target Market Determinations (TMDs) where required for relevant products have to be available for consideration by distributors/members. A copy of the PDS and TMD (where relevant) is available via the links above, and upon request by phoning 13 12 87 or by searching for the applicable product at The ANZ Smart Choice Super and Pension product is distributed by Australia and New Zealand Banking Group Limited (ANZ) (ABN 11 005 357 522).  We recommend that you read the ANZ Financial Services Guide (PDF), before deciding whether to acquire or continue to hold this product. View the ANZ Smart Choice Super and Pension Target Market Determination (PDF). ANZ Smart Choice Super for employers and their employees and ANZ Smart Choice Super for QBE Management Services Pty Ltd and their employees are MySuper compliant products issued pursuant to the latest PDS available at OPC is a member of the Insignia Financial group of companies, comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (Insignia Financial Group). The Australia and New Zealand Banking Group Limited (ANZ) (ABN 11 005 357 522) brand is a trademark of ANZ and is used by OPC under licence from ANZ. ANZ and the Insignia Financial group of companies (including OPC) are not related bodies corporate. ANZ does not stand behind or guarantee these products.

Before re-directing your super or moving your money into ANZ Smart Choice Super, you will need to consider whether there are any adverse consequences for you, including loss of benefits (e.g. insurance cover), investment options and performance, functionality, increase in investment risks and where your future employer contributions will be paid. 

This information is of a general nature and has been prepared without taking account of your personal needs, financial situation or objectives. Before acting on this information, you should consider whether the information is appropriate for you having regard to your personal needs, financial circumstances or objectives.

All fees are subject to change. Other key features are relevant when choosing a super fund, including performance. Past performance is not indicative of future performance.

ANZ does not represent or guarantee that access to ANZ Internet Banking or the ANZ App will be uninterrupted. Temporary service disruptions may occur. ANZ recommends that you read the ANZ App Terms and Conditions available here for iOS (PDF) and here for Android (PDF) and consider if this service is appropriate to you prior to making a decision to acquire or use the ANZ App.

You should read the relevant Product Disclosure Statement and Additional Information Guide available at or by calling 13 12 87 before deciding to acquire, or continue to hold, an interest in ANZ Smart Choice Super.

Taxation law is complex and this information has been prepared as a guide only and does not represent taxation advice. Please see your tax adviser for independent taxation advice. The information on insurance cover is a summary only of the terms and conditions applying to the insurance cover. To the extent there is any inconsistency with the terms of the insurance cover provided by the insurer, the terms of the insurance policy will prevail.

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