Find superannuation funds providing life insurance

Yes. As you work hard and build up your retirement savings, you can simultaneously get coverage for life insurance. For many Australian super funds, life insurance is a common feature that's included in superannuation by default. Often, it’s cheaper to hold life insurance within a super fund rather than with a tailored insurer but keep in mind that cover tends to be more basic and can have certain exclusions.

While the amount of cover differs between providers, superannuation life insurance typically falls into three categories:

Death cover:

Otherwise known as ‘life insurance’, this policy allows your beneficiaries to access a benefit when you pass away, either as a lump sum or ongoing payments. Death cover can also potentially pay out if you’re diagnosed with a terminal illness.

Income protection (IP) cover:

If you’re temporarily unable to work due to non-critical or critical illness or disability, you’ll be paid a salary continuance for a set period of time. Usually a monthly benefit of up to 75 per cent of your income, these payouts can help you cover bills while you recover, easing financial strain for you and your loved ones.

Total and permanent disability (TPD) cover:

If you suffer a permanent injury or illness and will likely not be able to work again, you’ll be paid a lump-sum insurance benefit. More often than not, you’ll have to be off work for a minimum of 3 to 6 months before your TPD cover claim can be processed.

Insurance premiums are paid out from your super, meaning you don't have to pay from your take-home wages.

The majority of super providers in Australia offer life insurance but not everyone does.

It’s important to note that life insurance from superannuation is not compulsory. In most cases, you can also choose to alter or cancel your super life insurance if you’d prefer to take out insurance elsewhere or not have to pay fees through your super. It can be worth seeking general advice and financial advice on what move makes the most sense for you.

Superannuation life insurance has a variety of advantages and disadvantages, as outlined below. It’s important to weigh these up when deciding whether to get life insurance through super or a standalone policy, so you know what to expect from each option.

Advantages of life insurance through superannuation:

• Convenience:

Premiums are automatically deducted from your super balance rather than your bank account, which can make it easier to manage your cash flow

•  More affordable:

Generally speaking, life insurance through super is cheaper than a separate life insurance product because the fund can negotiate a group discount on policies and pass on the savings to fund members

• Flexibility:

You can usually select the level of coverage you want, giving you the freedom to choose a policy that suits your specific needs

• No health checks required:

Depending on the super fund, you may not be required to undergo a medical check to determine your insurance eligibility. This can be beneficial if you work in a high-risk job or have any health conditions, because you may find it difficult to secure life cover elsewhere.

• You can increase your cover:

If you’d like more than the standard life insurance that comes with your super fund, you can generally apply for additional cover; however, you’ll likely have to undertake a medical exam or questionnaire for approval, and your premium pricing may go up.

Disadvantages of life insurance through superannuation:

• Limited cover:

Because coverage differs between super providers, the available level of coverage may not be sufficient for your requirements.

•  Nominated beneficiaries aren’t guaranteed:

Not all funds offer binding beneficiary nominations, meaning the fund’s trustee decides who’ll receive your money in the event of your death, whether they're an independent or dependant inheritor

•  Premiums come out of your super:

Unless you decide to salary sacrifice the cost of your premium, it will come off your super balance

• Slower payments:

Since superannuation life insurance payouts enter your super fund before they reach you, processing time for claims can be slower. This is especially the case for death benefits because the trustee has to decide who the correct beneficiary is.

•  Ends at a certain age:

Coverage usually ends when you turn 65 or 70, whereas policies outside of super may cover you for longer reduces your retirement balance: money coming out of your super means less money for your super fund to invest, which can reduce your total retirement savings.

To get life insurance through super you must first meet the eligibility requirements, which include:

•  Being at least 25 years of age.
•  Having at least $6,000 in your super account
•  Having made a contribution into your account within the past 16 months.

If you meet this criteria, you may be able to submit an insurance claim through your super provider either by a claim fund on their website or by calling and requesting one directly.

When making a claim for income protection cover or total and permanent disability cover, you’ll need to provide documentation (such as medical certificates) to support your claim.

In case of your death, your estate or beneficiaries will need to contact your super fund to find out how to claim death benefits. The claim process usually requires documentation to determine the correct beneficiaries of your super account balance.

Generally speaking, you cannot claim tax benefits on life insurance premiums through super accounts. This is because the cost of the insurance comes from your superannuation balance, not your income.

It is, however, possible to sacrifice salary into your super to meet the cost of your premiums. According to the Australian Taxation Office (ATO), you can ‘sacrifice’ some of your salary by having a portion paid directly into your super fund by your employer, instead of your bank account. The ATO says this will be treated as an employer super contribution and will be taxed at a maximum rate of 15 per cent, which is lower than most people’s marginal tax rate. The same goes for self-employed individuals, as they can claim a direct tax deduction on their life insurance for contributions made from pre-tax income. It’s a good idea to speak with a financial adviser to determine whether or not this is a viable option for your financial situation before you start putting extra cash into your super account.

The key to finding the right super life insurance for you is to do your research and compare the different super provider options that are available. If you already have life insurance through your super fund, you can follow the same process to see if the coverage is appropriate for your personal circumstances.

Factors to compare between each superannuation life insurance policy include:

•  Type of cover—death cover, income protection cover, and/or total and permanent disability cover
•  Level of cover
•  Cost of premiums
•  How long you’ll be covered for
•  Whether you can nominate a binding beneficiary

RateCity’s superannuation comparison tool is a handy way to shortlist super providers based on your chosen criteria.

The default super fund offered by your employer should offer a certain level of life insurance.

The best way to find out if you have life insurance through your super fund is to log into your account via the fund’s website or app; assess your annual statement; review the relevant Product Disclosure Statement (PDS); or enquire with your provider directly. If you do have life insurance, you’ll be able to check the type of insurance cover you have, what you’re covered for and the cost of your premium.

It’s also worth checking how your insurance premiums are calculated so that you can make sure they’re appropriate. For example, if you’re listed as a smoker but you don’t smoke, you may be paying more than you need to.

If you discover that you’re not registered for life insurance in your superannuation product and want to sign up, get in touch with your provider about setting up the appropriate super life insurance. Just be sure to read up on any disclaimers and FAQs before you sign on the dotted line.