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Busted: The superannuation myth we all believe has just been debunked

Image: Getty
Image: Getty

While insurance in superannuation is generally considered to be cheaper, analysis by a risk adviser suggests otherwise, and it’s a big warning to consumers.

The provision of insurance in superannuation to young Australians, and those with small account balances, has been heavily debated following the Productivity Commission’s report into fees and excess charges.

But the actual cost of the insurance to all super members hasn’t undergone as much scrutiny, and it could be leaving members far worse off.

“People don’t realise that there are so many different pricing scales, different points and tiers and as you move up and down the sums insured, the way that the insurers price it changes,” risk adviser at HLB Mann Judd, Andrew Kennedy told Yahoo Finance.

A review of HLB Mann Judd’s clients’ insurance in super found that the default insurance cover in super was “now mostly more expensive” by as much as 40 per cent.

Kennedy explained that while the default insurance cover is the “sweet spot” for affordability, once super members choose to adjust their insurance, they may run into significantly higher costs.

“I had a client I was looking at and she was in an industry fund and had moved away from the default cover that was in there because she had gotten a mortgage, and whatever the pricing was within that default fund, it was far more expensive for her to hold in there compared to most of the other retail insurers outside,” he said.

The client was ultimately paying more money for a lower quality insurance product than she’d be able to find outside the fund, the adviser argued.

In fact, the client saved hundreds of dollars by switching to a retail insurance product.

He agreed that the belief that insurance in super is always cheaper could be leading people to make these decisions without doing further research or seeking advice, but warned “it’s ended up costing people more money”.

Another client who was seeking about $350,000 in insurance was also copping higher fees than they’d pay for insurance of $400,000.

“Nobody [from the fund or insurer] would have ever said, ‘You know if you bumped the cover up $50,000 you’ll pay less.’ The insurers will just take the money.”

Kennedy said any decision to change your insurance within super should be advised.
“It may end up being the right choice to go with that insurer but a significant proportion of the time, you may end up be better going elsewhere.”

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