Trying to decide on the type of life insurance you want to apply for can be a tedious process, but understanding the advantages and disadvantages associated with life insurance through super vs. a standalone policy can make the process much easier.
Life Insurance Through Your Super
Members of superannuation funds can hold up to 3 different types of life insurance cover including; death cover, total and permanent disability insurance (TPD), and income protection.
According to Jane Eccleston, ASIC’s Senior Executive Leader of Superannuation “almost 10 million superannuation accounts have insurance” and many Australians are unaware they even hold insurance through their super fund . So before you take that next step you’ll want to check whether you’ve already got insurance through your super fund and what you’re covered for.
But if you’re looking to apply for insurance via your super you must be:
At least 25 years old
Have at least $6000 in your super account
Have made a contribution to your super in the last 16 months, unless you
- contact your fund to request insurance through your super
- work in a dangerous job and your fund chooses to give you automatic cover (you can cancel this cover if you don't want it).
Once you meet these requirements, insurance can then be added to your super.
Advantages of Life Insurance Through Your Super
It’s usually cheaper
Premiums are often cheaper due to super funds buying insurance policies in bulk. This type of pricing will also allow you to pay less for insurance held within your super.
Insurance premiums are automatically deducted from your super balance and you’ll be able to manage one account more easily than a separate super account and life insurance policy. This type of insurance also offers guaranteed acceptance which is ideal for those who work in high-risk jobs.
There may be tax benefits
This insurance option can benefit those who have a marginal tax rate that’s greater than 15%. 
Fewer health checks
Individual medical checks aren’t normally required with default or automatic cover under a group policy and this can be useful if you have health conditions that can make it difficult to get insurance outside your super.
You can increase your cover
You can generally increase your cover above the default level as long as you complete a medical examination and a general check-up.
Disadvantages of Life Insurance Through Super
Reduces your retirement balance
As insurance premiums are deducted from your super balance then this will reduce the amount you have left for your retirement. And if you have multiple super funds, likely, you’re also paying for multiple insurance premiums.
Cover can be limited
The default level of cover can be lower than the level of cover you could obtain in a standalone policy and cover usually ends when a person reaches 65-70 years of age or earlier if they retire and convert their superannuation into a retirement fund. If the default cover is the only insurance you have it can fall short in providing adequate protection for your beneficiaries. 
If you change funds, your cover might end
If you decide to change super funds, whether that be because of a new job or otherwise, there’s a chance that your cover might end. This is because super funds must cancel insurance on any inactive accounts after a continuous 16 months.
The payout might be delayed
Before releasing your funds, your superannuation trustee will have to decide whether the condition of release has been met, and who the correct beneficiary is. This may take some time depending on if there is a binding nominated beneficiary and if it’s current.
Binding and non-binding death benefit nominations can only be made to the deceased’s legal representative or dependant under superannuation law, a dependant being ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’.
If the nominated person does not meet the criteria for ‘dependant’ the Trustee will need to decide on the recipient of the insurance and superannuation benefit. 
Features of Standalone Life Insurance
You can tailor Budget Direct’s Life Insurance to your unique circumstances, to include things such as how much you’ll need to cover your mortgage, continue paying school fees or rent or cover other loans or debts you may have, in the event of an early demise.
It's important to also consider what you may want to leave as an inheritance or bequest as well as what role your existing assets can play in meeting ongoing financial commitments.
Our standalone life insurance policy offers cover including a lump sum payment if you pass away and a terminal illness benefit to help cover any medical treatment expenses or fund any last-minute experiences or adventures.
There’s also a funeral advance benefit to help cover any final expenses and a future increases benefit if an event like the birth of a child occurs and you need to increase your cover.
Instead of a one size fits all approach, life insurance should be tailored to your individual needs. And as long as you calculate how much cover you’ll need you can have that peace of mind knowing that you have adequate life insurance cover in place.
With Budget Direct you can explore different types of Life Insurance including Optional Total and Permanent Disability (TPD) Cover, Income Protection Cover and Trauma Insurance. And if you apply for cover and it’s issued, you’ll receive 1 month of cover free.
And finally, remember to always read the Product Disclosure Statement to understand the terms, conditions, limits and exclusions that may apply to a financial product before you purchase.