Life insurance is one of the best ways to protect yourself and those you care about most.
So it’s reassuring to know that most superannuation funds offer a built-in life insurance policy – also known as insurance inside super (IIS) – to their members. For many Australians, this is a simple and affordable way to manage life insurance.
However, it’s important to regularly check the insurance cover inside your super to make sure it meets your needs. For some people, purchasing a life insurance policy outside of super may be preferable.
What does IIS include?
Although it’s still life insurance, whether you buy it in or out of super, the insurance policy offered by your superannuation fund may include up to three distinct types of cover:
- Life insurance, which pays a lump sum to your beneficiaries if you die;
- Total and Permanent Disability (TPD) insurance, which is for serious accidents or illness that permanently stop you from working; and
- Income Protection insurance, which provides a regular payment during prolonged illness.
Most super funds that offer IIS allow their members to choose how much of each type of cover they need.
What are the benefits of IIS?
Depending on your circumstances, IIS can be a great way to obtain cover.
IIS premiums are paid out of your superannuation account, which can be beneficial if your cash flow is limited and may offer some tax advantages over retail policies. Premiums are paid from your pre-tax income, so money isn’t taken from your savings account for this purpose. In addition, super funds may automatically accept you for cover without requiring a health check.
How much cover do I need?
Whether you opt for IIS or retail cover, it’s important to think carefully about how much cover you need and to review your policy when life changes occur.
For example, young people who are renting and have no dependants may need less life insurance cover than someone with a partner, children and a mortgage.
By contrast, younger people who become unable to work may need more TPD cover than older people.
Some super funds provide online calculators to help their members figure out how much cover they need.
Remember, life insurance is for those you leave behind so they don’t experience financial hardship. When choosing your coverage, some basics to consider are:
- Mortgage debt;
- Cost of your children’s education;
- Your past and current health situation;
- Time to grieve.
For TDP insurance, consider:
- Your required medical treatment;
- Modifications to your home;
- Basic living expenses for the rest of your life.
What’s next?
Speak to your super fund to see if you have insurance inside your super and what level of cover you have.
