5 myths about life insurance and your super

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5 myths about life insurance and your super

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Want to sort the facts from the fallacies about life insurance in super? We bust five common myths

Taking out insurance through super is a simple, affordable way to take care of your loved ones. Life insurance can also enable you to leave a legacy – a donation to a charity or cause that’s dear to you, or a trust account to pay for your grandchildren’s education. 

You can hold the following life cover through your super:

• Life insurance, which can help provide for your partner and dependants if you’re no longer around. You can also claim on life cover if you become terminally ill. 
• Total and Permanent Disablement (TPD), which may provide valuable income if accident or illness means you’re unable to take care of yourself. 
• Income Protection (IP) insurance, which may provide a regular income for you if a temporary illness or injury means you’re unable to work for some time.

Most of us have some kind of insurance cover through our super fund. But because it’s generally paid for automatically out of super contributions, most of us don’t engage with it. This has led to misinformation and even outright myths. So let’s clear them up now. 

Myth #1: It’s hard to claim on insurance in super

A lot of people fear that when it comes to claim time, life insurance companies won’t pay up – or will make it hard to claim. But statistics say otherwise. 

Recent research from the Australian Prudential Regulation Authority (APRA) revealed that Australian insurers paid a whopping 98% of all life insurance claims made through super in 2021 and 96% of income protection (IP) claims.¹ In the same year, they paid 86% of total and permanent disablement (TPD) claims made through super.

So why were a small percentage of claims not paid out? In most cases, it was because the claim didn’t meet the insurance contract or was for a condition that was excluded from the person’s insurance policy. So it’s crucial that when you take out insurance, you understand what your policy covers – and what it doesn’t. To find this out, check the Product Disclosure Statement (PDS). 

It’s quite easy to make a claim on the insurance you have through super. Simply contact your super fund. They’ll let you know the documents you’ll need to support your claim.

Myth #2: You can only get a limited cover through your super

Your fund will set you up with a default amount of cover, but that doesn’t mean that you can’t change the amount. 

For example, let’s say you want to leave more money to your family or to a charity that means a lot to you. You can apply to have your amount of life insurance cover increased. Remember though, your insurer may need you to have medical checks and ask questions about your medical history if you want to increase your amount of insurance.

You can also choose to reduce your amount of cover if your life changes and you’re happy with less cover (and paying lower premiums). That could be when your kids leave home and become independent or your relationship changes.

If you have IP insurance, you may be able to change the length of the payment period, or the waiting period before your cover kicks in. But if you do, this could affect the cost of your premiums. 

Myth #3: Once you have a policy through your super, you can’t cancel it

Insurance through super is flexible. You can cancel your policy simply by contacting your fund. But keep in mind that if you want to reinstate your insurance later on, you might need to have a medical check and answer some personal questions about your health.

Myth #4: If you change to a new super fund, you lose the insurance you had through your old fund

It’s true that if you shut a super account your insurance cover in that fund also ends. But if your previous super fund offered better cover, you can choose to keep that superannuation fund open along with your new fund. This can be a great option for people who work in high-risk jobs, whose original super fund offered them a higher level of cover. It can also be a smart move if you have developed a health condition since getting your original insurance cover. 

If you choose to keep an extra super account open, you’ll need to make sure its balance stays at $6,000 or more, or tell the fund you want payments for insurance premiums to continue even if the balance falls below $6,000. You should also make a super contribution at least once every 16 months so the account doesn’t become inactive. 

Myth #5: Insurance through super isn’t worth the cost

Life is full of uncertainties. Life insurance is there to help you and your loved ones if things go wrong. And insurance premiums through super can be really good value. Premiums are generally cheaper than what you’d pay for direct insurance or for cover through a broker. That’s because the super fund can buy the insurance policies in bulk. What’s more, super’s tax benefits can make your premiums more tax effective.

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“Australian insurers paid a whopping 98% of all life insurance claims made through super in 2021 and 96% of income protection claims.”

¹ APRA, Life Insurance Claims and Disputes Statistics December 2021, issued 19 April 2022, accessed 8 September 2022.
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