Life Insurance in Super has become popular for many numbers of Australian’s who now obtain their cover from their superannuation fund.
Life Insurance and Superannuation
Some time ago, superannuation was mainly available to public service employees or staff of large companies. Many others acquired their superannuation and life insurance products from life insurance agents. The distribution of these products has undergone some change.
The establishment of mandatory employer superannuation has provided superannuation for almost all employees and now the majority obtain life insurance from their superannuation fund.
This has meant that a lot of Australians are accumulating their financial wealth (excluding their family home) and life insurances within a superannuation fund.
Many under insured
Many people are unaware of the insurance products available to them, the levels of protection they have within their superannuation fund and do not know how much insurance they require in the event of unexpected illness, injury or death.
The amount of insurance needed varies according to the circumstances of each individual or family.
• Those with high mortgages need to hold enough insurance to cover the outstanding debt.
• Workers should carry income protection, ideally this would cover their entire income with benefits payable up to retirement. However, insurers tend to limit cover to a maximum which is typically 75% of income plus an additional 10% to be paid into superannuation, so this maximum level should be obtained if affordable.
Many cannot afford to be comprehensively insured for Life insurance, TPD, Income protection and Trauma cover, funding insurance through their superannuation has a lesser impact on their cash flow and may be tax efficient.
Superfund Default Cover
Superfunds have made steps to increase levels of cover and address the under insurance issue by increasing default levels of cover. In a lot of cases this increase in cover is a positive one but will generally not cover the financial needs of most people.
One of the challenges for Superfunds is convincing members to consider their total insurance needs, if they rely on purely on default levels of cover they may be only minimally protected. Currently less than 10% of members have taken an addition to Term Life and TPD cover within their default fund.
Choice of Super Fund
Since the introduction of Choice of Fund, employers have had a lesser role in the amounts of insurance cover an employee may have, those who choose to use an alternate option to their companies default fund may leave themselves without basic or default level of insurance cover.
Those who choose not to cover themselves adequately may leave themselves in a unfortunate position if they become seriously ill or injured without the financial assistance to support themselves or their dependants
Self Managed Super Funds
The Self Managed Super Funds (SMSF) sector has incredible growth in recent years with approximately 425,000 SMSF’s, excluding retirees there are about 300,000 individual members who should have life insurance. However less than 20% of SMSF’s provide insurance cover. Some insurer’s have identified this as a growth of opportunity but at this stage no real impact has been made.
Life insurance in super especially SMSF’s is a growing concern and steps need to me made to ensure levels of cover and policy types are structured adequately.
