Life Insurance

Disadvantages of Default Life Insurance Through Superannuation

Did you know that you might be automatically insured through your superannuation fund? Whether you realise it or not, some super funds are required to sign you up for insurance, even going so far as to take money out of your super fund to pay for it. In 2021, ASIC estimated there were almost 10 million superannuation accounts with insurance included.

While there are some benefits to insuring through super – no requirement to complete an application– this doesn’t mean it is a good thing. In fact, there are quite a few disadvantages to having default insurance through your superannuation fund, and the best thing is that it is not compulsory! You can cancel your deafult super fund insurance anytime.

What insurance can you get through superannuation?

There are typically three kinds of insurance offered through your super. These are:

• Life (or death) insurance: This provides beneficiaries with a lump sum payment in case of death.
• Income protection: This provides a source of income if you are unable to work due to temporary illness or injury.
• Total and permanent disability (TPD) insurance: This provides a lump sum payment if you become seriously disabled and are unable to work again.

How do you know if you are insured through your superannuation?

There are generally a few guidelines surrounding your superannuation insurance. If you are under 25 and have less than $6,000 in your superannuation account, you won’t be automatically covered by insurance unless you work in a dangerous job or decide to opt-in for it. Once you have met these criteria and receive employer contributions, you are likely insured.

If you aren’t sure whether or not you are insured through your super fund, there will be proof of insurance through your super fund’s annual statement. Alternatively, there will be information about your insurance through your super account. If you still can’t find it, give your super fund a call and ask directly.

What are the disadvantages of default life insurance through superannuation?

• Default life insurance is usually inadequate for most people

APRA/ASIC came out with claims statistics in 2023 that proved just how different the coverage is for insurance inside and outside of super. The average claim for life insurance policies outside of super was $509,000 compared to super fund insurance policy payouts, which sat at around $135,000. This shows just how drastically different insurance policies inside and outside super funds are.

On top of that, some super fund insurance policies have a fixed premium but the amount you are insured for changes. As you age and the likelihood of making a claim increases, your super funds insurance policy lets you down right when you need it by reducing the amount of money you can claim.

When you have an underwritten retail insurance contract, your cover will not be reduced unless you specifically request this. Some policies also offer the option to increase your level of cover without needing medical checks.

• Claims payments made through super funds can be much slower

When insured through super default the claims process is usually slower when compared to a retail policy. If you have not nominated a valid beneficiary for your Life insurance, the insurer pays the trustee of your super account, and they may be left with whom your insurance will be paid to. Regarding ‘Total and Permanent Disability Cover’ and ‘Income Protection’ The trustee is left to decide if the ‘Super conditions of release’ have been met before a successful claim is paid.

• Tax may be payable on insurance benefits under super funds

A payment from an insurer outside of a super fund is usually 100% tax free. This is not always the case for insurance inside super funds depending on whether Life insurance is paid to a valid tax dependant beneficiary – for example a child under 18, a spouse or a person with which the life insured has an interdependency relationship.

Taxing your life insurance benefits largely depends on who is receiving the payment. If the beneficiary is not considered to be financially dependent (i.e. a non-dependent child aged over 18 or other non-financially dependent persons), they could pay as much as 32% in tax for the taxable component.

Tax may be applied on ‘Total and Permanent Disability’ proceeds if the proceeds are withdrawn from super before retirement age or age 60 years. Below that age of 60 the tax payable is determined by your super eligible service date. Tax of up to 22% may be payable including a portion which will be tax free.

• Insurance premiums get taken directly from your retirement balances

Arguably the most important point to make is that your insurance premiums get taken directly from your retirement funds when you insure through your super account.

While it may be appealing and convenient to pay through your super so you don’t lose any money out-of-pocket, you may consider making additional contributions to your super to boost your super and replace any additional insurance premiums.

Still Unsure? We Can Help

Are you unsure about keeping your default insurance with your superannuation?

When you insure through Morgan Insurance Brokers, we make sure you get the best life insurance for you. We have a discussion where we learn about your needs and then develop a tailor-made plan with comprehensive coverage at the most competitive premiums.

Contact us for a free, no-strings consultation and safeguard your future.

by jasper

Understanding Accidental Life Cover: What You Need to Know

by lauren

Underwritten versus Default Insurance: Ensuring Peace of Mind

by lauren

How Does Life Insurance Work? 

Life cover revolves around a fundamental concept, yet not all life insurance policies are created equal. Here’s what you should know about the mechanics of life insurance, the coverage it provides, and the process for receiving benefits if the unexpected occurs.

What is Life Insurance? 

Life insurance, also referred to as term life insurance or death cover, offers a lump sum payment to your chosen beneficiaries upon your death. This payout can help your loved ones cover various expenses, including mortgage payments, debts, childcare and school fees, and everyday living costs. 

Some policies also provide terminal illness cover, which pays a lump sum if you are diagnosed with a terminal illness and have a limited life expectancy. Life cover can be purchased on its own or combined with other insurance types, such as total and permanent disability (TPD), trauma insurance, or income protection insurance.

What Does Life Insurance Cover? 

Here’s a breakdown of what is typically covered by life insurance policies – 

Death Benefits – 

Life insurance provides a lump sum payment to your designated beneficiaries upon your death. This payout helps your loved ones manage various expenses, including – 

• Mortgage Payments – Covering outstanding balances to keep your home.  
• Debts – Paying off credit cards, personal loans, or car loans to avoid burdening your loved ones.
• Childcare and School Fees – Assisting with costs related to childcare and education. 
• Everyday Living Expenses – Supporting ongoing costs like groceries and utilities.

Terminal Illness Benefits – 

Many policies include terminal illness cover, offering a lump sum if you are diagnosed with a terminal illness and have a limited life expectancy. This payout can help with – 

• Medical Expenses –  Covering treatment, medication, and palliative care costs.
• Financial Support – Maintaining your family's standard of living while you're unable to work.

Accidental Death Benefits – 

Some policies offer higher payouts in the event of accidental death, providing extra financial support for unexpected costs.

Additional Considerations – 

• Exclusions – Life insurance policies often have exclusions, such as suicide within a specific timeframe after the policy starts. It’s essential to review the Product Disclosure Statement (PDS) for details.
• Policy Structure – Life cover can be standalone or linked with other insurance types, which may offer lower premiums but could reduce overall benefit payouts.

How Will Your Policy Be Structured? 

Many superannuation funds in Australia automatically provide a basic level of life insurance to their members, and you may have the option to increase your coverage through your super fund. However, it’s important to note that with superannuation-linked policies, the trustee of the super fund is technically the policyholder. In the event of your death, the trustee receives the benefit from the insurer and then distributes it to your beneficiaries according to your instructions or your estate.

When considering life insurance, you should also evaluate your policy terms. Term life insurance is a popular choice that offers coverage for a specified period, often with options to renew until a certain age. If you outlive the policy term, the coverage expires unless you choose to renew it, which may come at a higher premium. Conversely, whole life insurance, although less common in Australia, provides permanent coverage for your entire life, ensuring continuous protection without the need for renewal.

As you apply for life insurance, the insurer will assess your individual risk through a process called underwriting, which considers factors such as your age, health, medical history, and lifestyle. This assessment will determine whether coverage is offered and what your premium payments will be.

Finally, it's essential to remember that the structure and features of life insurance policies can vary significantly among insurers. To make an informed decision, compare options from different providers, read the Product Disclosure Statement (PDS) carefully, and consider seeking personalised advice from a financial advisor to determine the most suitable structure for your unique needs and circumstances.

Choose Morgan Insurance Brokers 

Let Morgan Insurance Brokers take the stress out of finding the right life insurance policy for you. Our team of life insurance brokers will provide personalised guidance, whether you're comparing term life and whole life insurance options or need help selecting a reputable provider. 

We'll navigate the intricacies of sourcing a policy tailored to your specific needs, ensuring you have the coverage you need to protect your family's financial future. 

With our deep understanding of the life insurance market, you can trust us to help you make informed decisions that offer you peace of mind and financial security.

by Mojo Dojo

Why Do You Need Life Insurance?

Life insurance is fundamentally about protecting your loved ones and securing what matters most. It provides a promise that those we care about will be supported financially if we are no longer able to provide for them. In times of emotional distress, it serves as a source of stability and reassurance for families facing challenging circumstances.

What is Life Insurance 

Life insurance is a contract that provides financial protection for your loved ones in the event of your death. When you take out a policy, you pay regular premiums to an insurance company, which in return agrees to pay a lump sum, known as a death benefit, to your designated beneficiaries upon your passing. 

This money can be used to cover various expenses, including mortgage payments to help your family stay in their home, everyday living costs such as groceries and bills, outstanding debts like loans or credit card balances, and funeral expenses to ease the financial burden of arrangements. 

Life insurance is often regarded as a vital component of financial planning, particularly for individuals with dependants who rely on their income.

Term Life vs. Whole Life Insurance – Which One Should I Get? 

Term life insurance provides coverage for a specific period, such as 5, 10, or 15 years. It pays a death benefit to your beneficiaries only if you pass away during the policy term. This type of insurance is generally more affordable than whole life insurance, especially for younger individuals. However, once the term expires, you need to renew it, often at a higher premium. 

In contrast to term life insurance, whole life insurance is a permanent life insurance policy designed to provide coverage for the policyholder's entire life, up to a predetermined expiry age or until canceled by the policyholder. This type of insurance is typically more suitable for individuals seeking permanent, consistent coverage

When deciding on what type is insurance for you, here’s a list of questions to consider asking yourself – 

1. What are your key concerns or priorities when thinking about life insurance? (e.g. affordability, long-term coverage, leaving an inheritance)
2. Do you have dependents who depend on your income? (e.g. spouse, children)
3. Do you have substantial financial obligations? (e.g. mortgage, debts)

Keep in mind that the ideal type of life insurance varies based on your individual needs and circumstances. Consulting a financial advisor can help you evaluate the advantages and disadvantages, enabling you to make a well-informed choice.

When Should You Buy Life Insurance? 

While the concept of life cover is straightforward, not all policies are created equal. Here are a list of factors to consider when selecting life cover and establishing your policy.

Age and Health Status 

Premiums are generally lower when you’re younger and in good health. Non-smokers may also qualify for lower rates. Some policies for seniors may not require a medical exam.

Dependents

Consider whether you have dependents, like a spouse or children, who rely on your income. Life insurance can replace your income and provide financial security for them in the event of your passing.

Financial Obligations

Assess your current financial responsibilities, such as a mortgage, credit card debt, and living expenses. Life insurance can help cover these obligations if you were to die or become terminally ill.

Life Events

Major life milestones, such as buying a home, getting married, or starting a family, often increase financial responsibilities. Life insurance can serve as a safety net during these transitions.

Existing Insurance Coverage

Check if you have coverage through your superannuation fund or other policies. You may be able to increase your cover through your super fund. If switching super funds, verify your coverage options, especially if you're over 60 or have pre-existing conditions.

Policy Features and Costs

When comparing policies, consider benefits, coverage terms, exclusions, waiting periods, premium costs, and the potential for future increases. Always read the Product Disclosure Statement (PDS) carefully to understand what is covered and any limitations.

How Morgan Insurance Brokers Can Help

Let Morgan Insurance Brokers find and manage the ideal life insurance policy for you. Whether you're weighing the options between term life and whole life insurance or need assistance choosing a provider, our life insurance experts are dedicated to delivering personalised solutions tailored to your needs.

We handle all the complexities of sourcing a life insurance policy, allowing you to relax and enjoy the peace of mind it provides. With our extensive industry knowledge, you can feel confident that you’re making informed choices for your financial security

by Mojo Dojo

Is It Good To Invest In Life Insurance?

Life insurance is primarily a safety net rather than a traditional investment aimed at generating financial returns. Its main purpose is to provide peace of mind, ensuring financial security for your loved ones. Although some policies may include a cash value component, this is less common in Australia, with a greater emphasis placed on the death benefit. 

When considering whether life insurance is suitable for you, take into account factors such as whether you have dependents who rely on your income, the amount of debt you carry, and your overall financial goals. There are various types of life insurance available, each designed to meet specific needs.

Why Should You Invest In Life Insurance? 

Determining whether life insurance is a worthwhile investment depends on your individual circumstances, priorities, and financial goals. 

When Life Insurance Makes Sense – 

Financial Dependents 

If you have a spouse, children, ageing parents, or others who rely on your income, life insurance is often crucial. It replaces your income, helping them maintain their standard of living and cover essential expenses.

Debt Management

Life insurance can prevent your debts from becoming a burden on your family. The death benefit can be used to pay off mortgages, loans, and credit card balances.

Future Planning

Life insurance can assist in achieving financial goals for your family, such as funding education, leaving an inheritance, or supporting a charitable cause.

Factors Affecting Value – 

Age and Health 

Younger, healthier individuals typically pay lower premiums, making life insurance more cost-effective over time. As you age, premiums rise, and pre-existing health conditions can increase costs.

Lifestyle 

Factors such as smoking, high-risk occupations, or dangerous hobbies can lead to higher premiums, affecting the overall value of the policy.

Policy Type 

Different types of life insurance (e.g., term, whole life) come with varying costs and benefits. It's essential to assess which type aligns best with your needs and budget.

Alternatives To Consider – 

Savings and Investments 

If your main goal is to build wealth, traditional investment options may be more appropriate. However, these come with market risks, unlike the guaranteed payout of a life insurance policy.

Superannuation-Linked Insurance 

Many Australian superannuation funds provide life insurance as a group benefit, often at lower premiums compared to individual policies. However, these group policies may lack customization and flexibility.

Understanding the complexities of life insurance—such as the various policy types, coverage levels, and potential tax implications—can be difficult. It’s advisable to consult a financial advisor for personalised guidance tailored to your specific financial situation and goals. They can assess whether life insurance is a beneficial part of your overall financial strategy and help you identify the most suitable options.

How To Decide If Life Insurance Is Right For You? 

Step 1: Assess Your Needs

Begin by carefully analysing your current situation. Consider your financial obligations, such as mortgages, loans, or credit card debts, and evaluate your family circumstances, particularly if you have dependents who rely on your income. It is also important to review any existing insurance coverage you may already have. This initial assessment will help you understand your specific needs.

Determine whether the default coverage provided by your superannuation fund is sufficient. Many people overlook this aspect, so it’s crucial to assess whether you need additional insurance to adequately protect your loved ones.

Step 2: Explore Your Options

Once you've assessed your needs, the next step is to explore your options. If you choose to consider life insurance within your superannuation, do not simply accept the default coverage. Instead, take the time to compare it with other policies available in the market. Pay attention to factors such as coverage limits, benefit payouts, and any additional features that may enhance your protection.

Step 3: Seek Expert Advice

Consulting an advisor or broker is essential for making informed decisions about life insurance products. An advisor can provide personalised insights and help you understand the pros and cons of various options in relation to your policy. This guidance is invaluable in ensuring that you select a policy that aligns with your specific needs.

Step 4: Conduct Regular Reviews

Life is ever-changing, making it vital to conduct regular reviews of your insurance coverage. This ensures that your policy remains aligned with your evolving needs. Major life events, such as family growth, asset acquisition, or changes in health, can significantly alter your insurance requirements. Regular assessments will help you adjust your coverage accordingly.

Let Morgan Insurance Brokers Help You Find The Best Policy 

Let Morgan Insurance Brokers simplify your search for the right life insurance policy. Our expert team will provide personalised guidance, whether you're comparing term life and whole life options or selecting a reputable provider. 

by Mojo Dojo