For many Australians, the only life insurance they have is through their super fund, and in many instances they are underinsured, potentially causing financial hardship for their family should they pass away unexpectedly.

The Rice Warner ‘Underinsurance in Australia 2020’ report revealed a worrying gap between levels of cover and potential future needs. It states: “The median default cover of superannuation funds meets approximately 65% to 70% of basic level death cover needs for average households, but a much lower proportion for families with children.”

And that’s not all. When premiums are paid from a super fund, less money is invested towards retirement – sometimes up to 25% less.

“It’s important that people understand what cover their super provides them as the default cover might not be enough for their families to maintain their lifestyle,” NobleOak CEO Anthony Brown tells Acuity. The cover under some types of super-based policies may automatically reduce as the person grows older. Making sure you’re adequately covered is essential for any policy, whether it’s through super or not.

Given how common it is for individuals to rely on their super for life cover, Brown says it’s surprising how many Australians aren’t aware of what the payouts might be.

“Many don’t check if it’s adequate for their family’s needs, don’t know about any restrictions or limitations and don’t realise that they may hold multiple life insurance policies.”

“Many don’t check if it’s adequate for their family’s needs.”

Possible drawbacks

Indeed, the ATO estimates four million people hold two or more and may be paying more for them than they need to. The possible drawbacks of having life insurance through a super include:

1. While premiums can sometimes be lower because super funds can buy cover ‘in bulk’, this is not always the case. They often provide a default level of cover which does not usually take certain individual factors into account, such occupation and whether someone smokes, so the cost may be more than a policy purchased from another provider.

2. Insurance choices can be reduced as you can’t take out trauma insurance that covers serious listed medical illnesses.

3. Complex and lengthy claims the claims process may take longer because payouts for successful claims go to the trustees of the fund who then consider whether it meets superannuation release conditions.

Buying outside of super

The amount of cover in super is often lower than the cover available outside super. Non-super policies can be more flexible so customers can choose from a range of cover types.

“Another advantage is that life cover can usually be held until you’re 99, whereas it usually stops at 70 if it’s through super,” Brown says. “The cover continues as long as pay your premiums, whereas super life insurance may cease if you stop contributing to the super or if your account balance is too low to meet your premiums.”

Find out more:

Fully underwritten life insurance is available under NobleOak’s Premium Life Direct product. It also includes income protection insurance, trauma Insurance and total & permanent disablement insurance (TPD).

For a quote, call NobleOak on 1300 108 490 or visit the website www.nobleoak.com.au/charteredaccountants

_{Important information – Please note, cover available to Australian residents only. The Target Market Determination for NobleOak’s Premium Life Direct insurance is available at www.nobleoak.com.au/target-market-determination. NobleOak Life Limited ABN 85 087 648 708 AFSL No. 247302 issues the products. This information is of a general nature only and does not take into consideration your objectives, financial situation or needs. Always consider the Product Disclosure Statement (PDS) (available at www.nobleoak.com.au) to see if the product is right for you.}