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