Life Insurance and Superannuation

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A majority of Australians depend on their superannuation fund to meet their life insurance needs, and fewer are purchasing stand-alone life insurance policies. Although an obvious majority of Australians believe their superannuation life insurance coverage is enough, others who may not believe it’s enough may still be sticking with it anyway because they fear purchasing stand alone life insurance – it may be too expensive, too complicated, or simply too time-consuming a process.

Thirty years ago, superannuation was a privilege some employers made available to employees. The growth of mandatory employer superannuation has made life insurance protection available to most employees of companies and organisations in Australia, and the majority of Australians today receive their primary life insurance coverage from their superannuation fund.

It is also no secret that most Australians are unaware of the different types of life insurance policies available, the benefits options that each carry, or how much life insurance they actually need if the unthinkable were to happen. A large number of individuals do not know the levels of protection within their superannuation fund or, their entitlements within worker’s compensation. This lack of understanding has contributed largely to the nation’s under-insurance problem.

Unless they are specifically putting together a financial plan, most Australians do not buy stand-alone life insurance. In fact, most don’t search for a life insurance plan outside of their super until they are close to retirement (if at all), leaving a majority of people inadequately covered during the years when they most need life insurance.

The amount of life insurance protection a person needs depends on their circumstances and the needs of their family. Individuals with mortgages and other outstanding debts need to have enough insurance in place to pay off these obligations upon their death. Individuals with children need to have enough coverage to see to their needs and education until they become adults. While most individuals should have a clear picture of what their family would need to survive and maintain their lifestyle if the family breadwinner were to perish suddenly, few have gathered the information they need to compare life insurance policies and determine where they stand as far as financial protection for themselves and their families is concerned.

Since  most Australians cannot afford to purchase life insurance, trauma, TPD and income protection insurance policies, they compromise by purchasing life insurance through their superannuation, which is a tax efficient option for most people with dependants, and it does not alter their take-home pay.

While people do have certain levels of protection and can expect reasonable benefits if they suffer injury, illness or death as a result of their work through Worker’s Compensation, the Transport Accident Commission (Victoria), and ETU Income Protection Insurance, none of these protections help them if they are injured or become ill away from work.

Still, it can seem more financially feasible for many middle income Australians to buy their life insurance from their superannuation fund, either directly or via their adviser. This means that many Australians may be putting too much faith in their super funds, only for their family’s to discover after their death that they had been only partly covered, or in some circumstances not covered at all. For instance, suicide is rarely covered in super fund life insurance policies. People with inadequate life insurance coverage through their superfund could be leaving catastrophic financial responsibilities to their families or dependants unwittingly.

Life insurance established through a self-managed super fund is generally an individual (retail) policy which has a wider range of options, and can benefit Australians if put in place by self managed superannuation advisors to make sure that  coverage is  adequate and that the insurance in question is properly structured and set up.

Purchasing any life insurance policy, whether within or outside of your superannuation fund requires familiarising yourself with the pros and cons of both choices. Do not hesitate to seek the advice of a financial planner with expertise in insurance, and compare life insurance policies to determine your best options when it comes to quality and price. For more information, visit MultiCover.com.au.

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