Many Australians are surprised to learn that their superannuation account includes insurance cover. In fact, millions of superannuation accounts hold life insurance, total and permanent disability (TPD) insurance, or income protection cover as part of their membership.
While insurance through super can provide valuable protection, many people are unsure about the level of cover they have, what it costs, and whether it remains suitable for their circumstances. Relying on assumptions can leave you underinsured or paying for cover that no longer meets your needs.
Here are some of the most common misconceptions about insurance held within superannuation.
“Everyone Automatically Receives Insurance Cover”
Not necessarily. Under current rules, insurance is generally not automatically provided to members who are under 25 years of age or who have a superannuation balance below $6,000, unless they specifically elect to receive cover or qualify under certain high-risk occupation provisions.
For younger workers and those new to the workforce, this means there may be little or no insurance protection in place unless action has been taken to opt in.
“My Default Cover Will Be Enough”
Default insurance is designed as a basic level of protection rather than a tailored solution.
The amount of cover provided through a superannuation fund may not adequately reflect your personal circumstances, financial commitments, family responsibilities or income level.
It is also important to understand that:
- Eligibility conditions may apply.
- Certain medical conditions or occupations may be excluded.
- Cover levels can reduce as you age.
- Insurance may cease if your account becomes inactive or your balance falls below required thresholds.
- Cover may end when you reach a specified age.
When reviewing your policy, pay close attention to any exclusions, restrictions or premium loadings. A loading is an additional premium charged to individuals considered higher risk, such as smokers, people with pre-existing medical conditions or those working in hazardous occupations.
Ensuring your occupation and personal details are correctly recorded may help prevent unnecessary premium costs.
“My Insurance Will Follow Me If I Change Funds”
In many cases, insurance attached to your superannuation account does not automatically transfer when you move to a different fund.
Changing funds without reviewing your insurance arrangements can result in valuable cover being cancelled.
While some insurers offer options to transfer cover into a personal policy, this may require additional medical assessments and could result in higher premiums.
Similarly, consolidating multiple superannuation accounts can unintentionally cancel insurance policies attached to those accounts. Before rolling funds together, it is important to understand exactly what cover may be lost.
“If I Stop Contributing, My Cover Won’t Change”
Many people are unaware that insurance cover can be cancelled if a superannuation account becomes inactive.
Under current legislation, insurance is generally cancelled when an account has not received contributions for at least 16 months. Some superannuation funds may also cancel cover if the account balance falls below certain levels.
Although funds are generally required to notify members before cancelling insurance, outdated contact details can mean these notices are never received.
Regularly reviewing your account and ensuring your contact information is current can help avoid unexpected loss of cover.
“Having Multiple Super Accounts Means More Protection”
While holding multiple superannuation accounts may provide access to multiple insurance policies, it can also result in multiple insurance premiums being deducted from your retirement savings.
Over time, these premiums can significantly reduce your superannuation balance.
In addition, claim outcomes and policy benefits vary between insurers, and benefits are not always cumulative. Paying for several policies does not necessarily mean you will receive multiple payouts in every circumstance.
Reviewing your overall insurance needs can help determine whether maintaining multiple policies remains appropriate.
“Insurance Through Super Is Always the Cheapest Option”
Group insurance arrangements offered through superannuation funds often benefit from bulk pricing, which can make premiums competitive.
However, the cheapest premium does not always represent the best value.
Cover levels, policy definitions, exclusions, waiting periods and benefit conditions can vary significantly between providers. In some cases, a policy obtained outside superannuation may provide more comprehensive protection or better suit your personal needs.