Evaluating the Benefits of Superannuation Insurance Compared to External Providers

Posted on 13 February '24 by , under super.

Many superannuation funds offer life insurance as part of their member benefits package.

This type of insurance provides a lump sum payment to the policyholder’s beneficiaries in the event of the policyholder’s death or if they become terminally ill.

Life insurance through superannuation offers several advantages:

  • Cost-Effective Coverage

Since super funds purchase insurance policies in bulk, they can often negotiate lower premiums than individuals purchasing standalone policies.

  • Automatic Acceptance

In many cases, members are automatically enrolled in the default insurance option offered by their super fund without the need for medical underwriting, making it accessible to individuals with pre-existing health conditions.

  • Tax Efficiency

Premiums for life insurance held within superannuation are generally paid using pre-tax dollars, potentially reducing the overall cost of coverage. Additionally, lump sum death benefits paid to dependents are usually tax-free.

Considerations and Implications

While life insurance through superannuation offers numerous benefits, there are several important considerations for policyholders:

  • Coverage Adequacy: 

Default insurance coverage provided by super funds may not be sufficient to meet the specific needs of all members. Individuals should assess their insurance needs and consider whether additional coverage is necessary.

  • Eligibility and Conditions: 

Eligibility for life insurance through superannuation may vary depending on factors such as age, employment status, and fund membership. Policyholders should review their fund’s insurance policy to understand coverage terms, conditions, and exclusions.

  • Premiums and Fees: 

While insurance premiums within superannuation may be lower, policyholders should be aware of any associated fees and charges, which can impact the overall value of their super balance.

  • Impact on Retirement Savings:

Holding insurance within superannuation can reduce the overall balance available for retirement savings, particularly for younger members who may have decades until retirement. It’s essential to balance insurance protection and long-term retirement goals.

Life insurance through superannuation is a valuable resource for individuals seeking affordable and accessible protection for themselves and their families. By understanding the benefits, considerations, and implications of this type of coverage, policyholders can make informed decisions to safeguard their financial future. As with any financial decision, seeking professional advice tailored to individual circumstances is advisable to ensure adequate protection and long-term financial security.