There are a lot of positives about having life cover through super. It doesn’t affect your day to day cash-flow as it is being deducted from your super balance, there are some tax minimisation advantages and because super funds can purchase life cover on a ‘group’ or wholesale basis, the premiums are usually affordable.
However life insurance is one area where savings shouldn’t be the key driver. What matters is that you have the level of protection appropriate for your needs. And on this score, many super funds fall short.
You could be underinsured by $100,000
According to research group Canstar, default life cover arranged through super funds may typically only be worth $100,000 or $200,000 1. In today’s world of high living costs, that sort of payout is unlikely to come close to meeting your family’s needs.
Worryingly, industry figures suggest as many as one in two Australians may be underinsured by $100,000 or more 2.
We can determine what impact the funding of premiums will have on your long term goals for income in retirement, so we can put appropriate strategies in place to minimize the impacts.
Your fund could decide who receives the payout
Be aware too, unless you have a current binding nomination in place with your super fund, your life insurance payout may not go to the people you want it to. It can be left to the fund trustee to determine the beneficiaries of your life insurance.
Okay, it’s always better to have some life insurance than none at all but it’s important to be sure your family and other dependents are protected.
Topping up your life cover with an independent (non-super) policy can be surprisingly affordable. And it may mean the difference between your family struggling financially – and being able to rebuild their lives free from financial stress.
As a starting point, take a look at the checklist below. If you’re unsure about any of the answers, contact your local financial adviser to review your level of life cover.