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How life insurance in your super could impact your retirement savings

If you have super with a default fund (i.e. the one your employer offered) you will have some form of life insurance, unless you have opted out. If you have researched and selected a superannuation fund specifically for yourself, you have probably been offered insurance. Either way life insurance and superannuation go hand in glove.

The fact is, insurance in your super can be a bit of a safety net, providing some protection in certain circumstances. But what is the insurance offered and how much can the premiums impact your retirement savings?

In conjunction with the release of Canstar’s 2018 Superannuation Star Ratings, our research team crunched the numbers to project a few possible scenarios to demonstrate what difference opting out of default life insurance could make to your retirement balance.

Many superannuation funds offer life insurances, such as death cover, total and permanent disability (TPD) cover and income protection, with a combination of these often set as default inclusion. This means the premiums will be deducted directly from your account. These policies can be cheaper than similar products external to your super as super funds can purchase policies in bulk. If you’re unsure whether you are paying for a default life insurance policy through your super fund, check your super statement or ask your fund directly to understand what you may be covered for.


What impact could life insurance premiums have on your retirement savings

Something to keep in mind is that your premiums are not the only cost to factor in when considering the impact of paying for life insurance through your super. The reduction of your balance will also impact the amount remaining that can be invested.

For example, a 25-year-old blue collar non-smoking male with a $60,000 annual income and $30,000 superannuation balance could retire at age 67 with up to $244,000 more if he opted out of default insurance through his super versus if he kept it. This is calculated using the maximum annual default death and TPD insurance premiums charged by funds included in the 2018 Star Ratings.

A more modest calculation, instead using the average default insurance premiums, would see the same person around $76,000 ahead in their super balance if they opted out of default life insurance.


What you should consider when it comes to life insurance

Before you make any decision regarding your insurance through your super, you should carefully consider your personal circumstances. For example, if you are single without any dependents or essential outlay (such as a mortgage), you may feel you do not have as strong a need for life insurance compared to someone who has a family to support. It’s also worth reviewing your need for life insurance at each stage of your life, as finding yourself at a stage where you have substantial financial commitments but inadequate insurance can be a serious concern.

Also – when you do feel the need to have life insurance, such as when you have dependents, you may find the default insurance is not sufficient cover for your needs and instead a tailored policy could be worth consideration.

However, keep in mind if you are planning to get cover later in life, based on today’s policies, it is unlikely you would be able to opt back into a default cover policy. Many funds offer a tailored policy, however this could be more expensive and more difficult to obtain if you have any injuries or health issues arise between now and then. If you specifically wanted default insurance after opting out, you would in most cases be required to switch super providers.

Before making a decision to switch, it’s important to remember there are many factors to consider when choosing a super fund in addition to the insurances on offer, such as past performance, ongoing fees and the advice on offer.

And so, in summary – the premiums you pay for life insurance through your super could significantly impact the amount remaining at retirement. Opting out of life insurance held through super certainly isn’t right for everyone – what is important is that consumers make informed choices and understand the trade-off. Consider your circumstances and look into the inclusions and exclusions of your policy before you make any final decisions.


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