September not only marks the start of spring, but can also be a useful time for Australians to prepare their tax, review their superannuation, and get their finances in order. But one important area is often overlooked.
The Council of Australian Life Insurers said insurance through super was one of the most accessible, yet least understood forms of financial protection with only one in three Australians understanding the products and benefits they had.*
Budget Direct is encouraging Australians to take some time to check their super-based life insurance to understand what is covered and consider whether the type and amount of cover remain appropriate for their circumstances.
Andrew Daly, Executive General Manager, Partnerships and Alliances at Budget Direct, said two common ways to structure life insurance are through default group cover provided within your superannuation or a standalone policy.
“Default group cover in super exists for a reason. It’s convenient, and for those with health conditions or in high-risk occupations, it typically has less initial health checks.
“But it’s not one-size-fits-all and cover can be limited and not specific to individual needs.
“For many of us, default cover in super is one less bill to think about and may have tax benefits. But it’s important l to remember these premiums are deducted from your super, can erode the balance you’re building for retirement, and default cover may not be enough when it’s needed most,” explained Daly.
Here are just some of the many factors to consider when reviewing your super-based life insurance.
- Amount of cover: Default group cover through super-based life insurance is generally not tailored to each member’s individual financial circumstances. Consider whether the amount and type of cover would be sufficient for commitments such as a mortgage, other debts, ongoing living expenses, or children’s education. If income protection or salary continuance cover is included, check the benefit amount, waiting period, and benefit period as these will also differ between policies.
- Impacts super balance: Premiums deducted from your superannuation account reduce the balance available for investment and retirement. People with more than one superannuation account should also check whether they are paying for multiple insurance policies and whether each policy remains appropriate for their needs.
- Policy definitions: Super-based life insurance policies, particularly for Total and Permanent Disability (TPD), can have stricter definitions than standalone life insurance policies.
- Types of cover available: There are many types of products available in life insurance that offer different cover. Some forms of cover, such as trauma or critical illness insurance, may not be offered through your super. Consider the types of cover held, and what you might require.
Depending on the product selected, standalone life insurance may allow you to tailor the type and amount of cover to your individual circumstances, taking into account commitments like your mortgage, rent, school fees, and personal loans. Benefits may include a lump sum payment on death or terminal illness, funeral advancement benefits, and options to increase cover as your life changes, subject to underwriting and policy conditions.
Andrew Daly said the goal is to make educated decisions on your holistic life insurance needs.
“Spring is the ideal time to review your life insurance. Find out what you’re currently covered for by logging into your super fund and compare that to what you think you’d need to ensure your loved ones will be taken care of.
“There are many independent resources available to help you such as information on the government’s Moneysmart website as well as Budget Direct calculators and guides.
“The goal is to know your cover and make informed choices that suit your individual needs and circumstances,” added Daly.
* https://cali.org.au/the-quiet-protector-sitting-in-your-super/