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A guide to insurance in superannuation

Insurance cover can be a lifesaver if you become unable to work.

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Last updated: 22 March 2022
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Most super funds will automatically offer you insurance when you sign up. This insurance can be vital if you suffer an illness or injury that leaves you unable to work. In this case, it can help replace your lost income. 

Similarly, if you die prematurely and have people (such as children or a spouse) relying on you financially, it will provide them with some income.

This insurance isn't well understood, and many people don't even know they have it. 

Here's our simple guide to insurance in super.  

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The 3 types of insurance in super

There are three main types of insurance you can get included in your superannuation:

Total and permanent disability (TPD) 

Most superannuation funds will offer this type of insurance. This cover provides you with income if you become ill or injured and are unlikely to work again.

Income protection (IP) 

This cover gives you a regular income if you're temporarily out of work because of illness or injury. It lasts for a specified amount of time, often two years. Despite the name, this insurance doesn't provide you with income if you lose your job for any other reason. 

(The superannuation fund HESTA is an example of an exception to this rule. HESTA offers income protection insurance that will provide you with income if you're temporarily or permanently unable to work.)

Life insurance (sometimes called death cover) 

If you die prematurely, this will provide your beneficiaries, such as children, with income – either a lump sum or a regular income stream.

Which insurance is offered by default

Most superannuation funds will provide you with TPD and life insurance automatically, or by 'default', with income protection insurance offered as an optional add-on (see our guide to income protection insurance).

In most cases, this insurance is offered automatically. This means there are no health checks or underwriting; you get the cover even if you have some pre-existing health condition. However, some funds do have pre-existing condition exclusions in their policies, which means your claim may be denied. You should check with your fund to see if this may affect you.

There's a whole other range of TPD insurance available outside of super. You can have cover either inside super or outside super, or a combination of both. If you get TPD and life insurance outside of super, however, you may have to answer questions about your health.

Because TPD and life insurance in super is provided automatically, there are no health checks or underwriting

You may also decide that you want more insurance than the default cover your fund offers. This add-on insurance may work differently – contact your fund for details.

When is insurance in super not automatically offered?

When you're under 25

Generally, if you're under 25, your super fund won't automatically provide you with TPD or life insurance.

Again, there are some exceptions to this rule. Some funds may automatically provide you with cover if you work a dangerous job, though it's always worth checking if this is the case in your fund. You can also cancel this cover if you choose.

When you have a low super balance

Similarly, insurance won't be automatically turned on for new fund members with less than $6000 in their account.

If you're under 25 or have a balance below $6000 you can also ask your fund to turn your insurance on before reaching this age.

When you're 65 or over

Generally, TPD insurance in super stops at age 65 and death insurance ends at age 70. 

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TPD insurance generally ends at age 65, and life protection insurance is no longer offered from 70.

Why insurance in super can get cancelled

For a long time, there was a problem with insurance in super as people would have multiple super accounts and be paying for unwanted insurance in accounts they'd forgotten about. 

Forgotten and inactive super accounts waste a massive amount of the account-owner's money and meant they retired with less than they could have.

Because of this, a new law was introduced that said funds have to cancel insurance on inactive super accounts. Your account will be considered inactive if nobody has contributed for at least 16 months. Some funds may also cancel insurance before this time, or when the balance is too low.

Your fund will contact you if your insurance is in danger of being cancelled.

You can still keep your insurance by contacting your fund.

Stapling of super funds and your insurance

You may have seen some discussion in the media about the 'stapling' of super funds and how this impacts insurance. 

Stapling was introduced in 2021 and simply means that your super fund moves with you from job to job. This change was designed to stop people having unwanted duplicate accounts and wasting money. You can still change funds at any time.

If you change jobs it's important to check that your insurance is still right for you 

One potential issue with stapling is that you start in a super fund that offers insurance that covers your original work, but that might not fully cover you if you change jobs. 

Super Consumers Australia is advocating for all funds to offer good-value default cover for all their members. But in the meantime, if you change jobs it's important to check that your insurance is still right for you.

How to check your insurance is right for you

You can check what cover you have through your fund's website. If you're still unclear, contact your fund. 

We've written a template for contacting your fund about your insurance.

ASIC has a life insurance calculator to determine how much insurance you may need based on your individual circumstances.

Young people who have no dependents may not feel they need life insurance

You might also want to think about whether you need life insurance at all. Young people who have no dependents may not feel they need it.

Another point to check is whether your fund has defaulted you into the wrong risk category. Some funds may charge higher premiums for 'blue collar' workers, for example, and you may be able to pay less if you're doing a relatively low-risk office job. Contact your super fund for more information.

Insurance in super vs insurance outside super

As mentioned, one of the key differences between insurance inside and outside super is that the default insurance in super is provided automatically without any checks or questions about your health. 

If you have a pre-existing condition, it may be harder – or more expensive – to get cover outside super. Or the insurance provider may seek to exclude you from making a claim relating to the condition.

If you have a pre-existing condition, it may be harder – or more expensive – to get cover outside super

Another difference is how long the cover continues. Insurance outside of super usually continues indefinitely as long as you keep paying the premiums – these will generally become more expensive as you age.

Your super fund will deduct premiums for this insurance from your super; you don't have to pay separately. This arrangement may help you manage this expense. You could also save on tax as you pay the premiums from your pre-tax income.

If you need to make a claim

This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.