Insurance through super funds
While most people consider it important to ensure their car, home and contents are insured, some pay less attention to how their financial security, and that of their family, might be impacted if they could no longer work because of illness, injury or death.
A failure to plan ahead to ensure that you do have insurance - and at the right levels of cover to meet your needs if such unforeseen circumstances were to arise - could result in significant additional stress and disadvantage from which it might not be possible to recover.
The most common types of insurance policies people consider include death cover (also known as life insurance); total and permanent disability cover (also known as TPD); and salary continuance cover (also known as income protection).
It is possible – and often preferable – to take out insurance policies in these areas via your super fund.
Why take out insurance via your super fund?
When you take out insurance via your super fund, in many instances premiums will be cheaper compared to retail insurance providers because your super fund is able to purchase insurance in bulk quantities for a large number of members of the fund – this is referred to as ‘group insurance’.
Taking out insurance policies via your super fund is usually easier to do, and much more convenient to manage compared to retail insurance providers, because your insurance premiums (payments) are automatically deducted from your super account. It is important to note that the payment of insurance premiums from your super account will reduce the amount of retirement savings you will accumulate.
Automatic deduction of premiums is designed to ensure people don’t find themselves without cover at a time of crisis, simply because they forgot to renew their policy.
Other advantages associated with taking out insurance via your super fund include that some funds automatically accept you for cover without requiring a health check, and you can usually vary the amount for which you want to be covered or cancel the cover entirely.
Death cover, also known as life insurance, refers to the financial benefit your beneficiaries receive, either as a lump sum or as an income stream, if you die.
This would assist your partner or dependents to pay the mortgage, school and other essential expenses.
In many instances when you join a super fund, the fund will automatically provide you with default death cover at a certain level. Individuals can choose to either cancel this cover (and the costs associated with it); maintain the cover at the default setting; or increase or decrease the amount for which they are covered. Varying the level of cover may require medical information being provided.
Total and permanent disability cover
Total and permanent disability cover, also known as TPD, may provide insurance cover if you are totally or permanently disabled via illness or injury and cannot continue to work and earn an income.
TPD insurance typically applies irrespective of whether the illness or injury was sustained at work or elsewhere and can help cover the costs of rehabilitation, debt repayments and the future cost of living.
Similar to death cover, when you join a super fund, the fund may automatically provide you with default cover at a certain level. Individuals can choose to either cancel this cover (and the costs associated with it); maintain the cover at the default setting; or increase or decrease the amount for which they are covered. Varying the level of cover may require medical information being provided.
Salary continuance cover
Salary continuance cover, also known as income protection, pays you an income stream, usually up to 75 per cent of your gross salary, for a specified time period if you cannot work due to temporary (as opposed to permanent) disability or illness.
Deciding whether or not to take out salary continuance cover in addition to death cover and TPD cover is an important consideration for anyone who relies on an income, particularly self-employed people and small business owners or professionals.
Take personal control of your insurance
The Financial Services Royal Commission has rightly shone a light on many areas of financial mismanagement and misdealings, including in relation to the area of insurance.
It is deeply unfortunate that some people have been misled and let down by their insurance providers. At the same time, it remains the case that living without insurance places individuals and their dependents at risk of increased hardship at times of unexpected personal misfortune and tragedy.
The independent ASIC MoneySmart website - moneysmart.gov.au - is a good source of information about the pros and cons of different types of insurance, including the ones discussed in this article.
Your super fund should provide information on their website on these topics and be willing to answer any questions you, or your staff, may have.
Finally, even if you are satisfied with your current types and levels of cover, it is worthwhile reviewing these on an annual basis. Your circumstances will change over time and therefore the appropriate level of death, TPD and/or salary continuance cover required for you and your family may also change too.