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Insurance in super: Your 5-minute guide

Jane Elliott has accessed the insurance inside her super, but half of Australians with super don't know what their insurance is. (Sources: Brighter Day, Getty)
Jane Elliott has accessed the insurance inside her super, but half of Australians with super don't know what their insurance is. (Sources: Brighter Day, Getty)

Only one in two Australians have an understanding of what insurance they have inside their superannuation, and it’s a problem that threatens members’ financial wellbeing, an expert has warned.

When Jane Elliott was diagnosed with stage four metastatic skin cancer, she became eligible to access the life insurance within her superannuation.

While it was a difficult decision to access the funds, Elliott is now glad she was able to draw down on her insurance and build a comfortable life and future for herself.

However, while 73 per cent of Australians are aware their super contains life insurance, only 50 per cent know what cover they have, according to research by insurance provider MetLife.


Briony's story:

Additionally, only 34 per cent know the premiums they’re paying for their cover, while 57 per cent don’t know how to calculate the cover they need.

While it’s good news that the number of Australians engaging with their insurance in superannuation is increasing, more fund members need to check their insurance is working for them, Chesne Stafford, MetLife’s chief customer officer told Yahoo Finance.

“We see so many customer stories of where they, unfortunately, have had to claim because of a health issue, but overwhelmingly they come through it with a much more positive view on things because … they realise the really great benefits of having that peace of mind and that safety net there,” Stafford said.

“The more customers engage with [insurance in super], the better off they feel in terms of their financial security.”

I have no idea what insurance is inside my super

There are three main forms of insurance in super, Stafford explained:

  • Total and permanent disablement cover

This is a form of insurance that kicks into gear if a member experiences an injury or disease that means they are permanently unable to receive an income.

This is paid out in the form of a lump sum or an income stream and the payouts will usually range from $80,000 to $400,000, although some funds offer significantly more, according to SuperGuide.

  • Income protection insurance

This is an income-replacement scheme that provides a salary-like payment for a set period of time, which could be two years, five years or more.

This is paid in instalments and is usually up to 75 per cent of a member’s pre-tax income.

People can access this insurance if they are unable to work due to a temporary illness or disability.

  • Life insurance

This is insurance that is paid out to a member’s beneficiaries when they die, or to the member if they have a terminal illness.

Elliott was able to access her life cover due to the nature of her skin cancer.

Why it’s important to keep your superannuation details up to date

Elliott had changed jobs six months before her metastatic diagnosis so she had looked at her superannuation and changed her insurance cover so she was covered as a white-collar worker. She also had an understanding of the insurance within her super.

Changing her superannuation cover meant she was paying the appropriate fees for her occupation.

This is a critical point, Stafford said.

Nicole's story:

Insurance in super is generally cheaper than insurance outside of super due to the way it is structured.

“In order to get the cover and make it accessible for everybody and make it simpler and a more straightforward process to get the cover, we have to look at ways to get enough information on [members’] way in,” she said.

Insurers will rely heavily on the information members provide - in terms of their occupation - to assess risk, and as such determine the premiums attached to their cover.

“So when the funds establish their insurance relationships with insurers like MetLife, they will take a good look at their membership,” Stafford said.

Different funds, for example industry-based funds, may have different profiles. Then the insurance provided would likely be a standard category that aligns to members’ occupation profiles.

“It’s reasonably well-informed but we need to make it simple so that members can get the cover quickly,” Stafford said.

Typically, the occupation categorisation won’t change the size of payments delivered, but it will impact the premiums.

“But the beautiful thing is that when members enter the fund, they can always adjust that category.”

How do I check and update my cover?

It’s critical that Australians understand what insurance they have in super, because within the three different types, there are many more variations in how the payments and eligibility are calculated.

For example, some insurers will only pay totally and permanently disabled cover if their member is unable to work in any occupation. Other policies will offer payments if the member is unable to work in their own occupation.

While the first form of cover is cheaper, it’s harder to claim. The second form of cover is more expensive because it’s easier for members to claim.

And for Elliott, the nature of her cover meant the payout percentage also depended on her occupation.

According to Stafford, the process of checking your insurance is simple.

Most funds now have online portals that members can log in to and access their product disclosure statements, view the details of their insurance policies and change as required.

Otherwise, it’s a matter of calling the fund and asking for the details. This information is all publicly available, so it should be a straightforward process, Stafford said.

If you’re changing funds, it’s also critical to compare cover.

For members who have adjusted their cover within one fund but now want to change funds, Stafford suggests calling up the new superannuation provider to find out if they’ll offer the same coverage.

Financial wellbeing the goal

Needing to access this insurance is a scary thing to contemplate, but members that engaged with the insurance inside their super actually felt better after doing so, Stafford said.

“When people actually realise the benefits of what they have inside their superannuation, overwhelmingly, people talk about the peace of mind, relief and the gratitude that they have for knowing they have this safety net.”

For Elliott, this has definitely been true.

“I’m able to live a comfortable life,” she said.

“I’ve got a really comfortable life that supports me to get a good rest, and it’s just living expenses because I’m not able to work at the moment.”

She’s also investing a large part of the payout.

“I’m not looking super long term, but I’m looking at the next five years. I know I need to figure out a way to support myself financially that isn’t tied to my job.”

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