Personal insurance within retail and industry superannuation funds
Types of insurances found within super funds
There are four types of personal insurances that can be found within a retail or industry super fund:
| Type of cover | Comment |
| Life | Lump sum payable on death of the life insured |
| Total and permanent disability (TPD) | Lump sum payable should you be deemed to never being able to re-join the workforce again |
| Income protection | Agreed income paid periodically while you are deemed not to be able to work |
| Trauma | Lump sum payable if a pre-described medical condition occurs |
Note: from 01 July 2014 trauma cover, own occupation TPD and some ancillary benefits (for TPD and income protection) will no longer be allowed within super funds. However, those that have existing cover in place that falls outside these new rules will be allowed to retain this cover within their super fund until the existing policy lapses.
Understanding insurance policies within retail and industry super funds
Having personal insurance can be a great financial safety net should an ‘insurable event’ occur. But how many of us truly understand their insurance policy?
Insurance policies within retail and industry super funds typically are ‘group policies’. This means that an insurance company when assessing risk will assess the risk and circumstances of a group (all members of the fund) and not assess the risk or personal circumstances of any particular individual.
Thus, they will impose a set of rules that will be general for all to follow and to limit the risk, not only for all members but more importantly to the insurance company itself.
How do super fund providers provide low cost insurance?
Often by choosing an insurance company to provide insurance coverage to its members that impose a higher number of rules that dictate when a policy can be accepted for a payout.
Country of residency and insurance policy
One such rule we see often is your country of residency and your ability to access superannuation insurance benefits. For many funds, your ability to access insurance benefits within superannuation cease when you become a non-Australian resident. This has a twofold effect:
- You may not receive a financial payout when needed most should you need to make a claim
- You may continue to pay premiums on insurance cover that is worthless to you
If your super fund does not allow insurance payouts while you are a non-resident you generally have three options:
- Roll existing super funds into another fund that allows non-resident member insurance payouts
- Apply for personal insurance personally outside of super. The policy will then be able to incorporate your personal circumstances, which includes living overseas
- If none of the above appeal to you, you may seek to halt the insurance cover until you become an Australian resident again, or cancel the policy altogether
We advise that you seek advice if having personal insurance is important to you.
Your insurance policy within a retail or industry super fund can change at any time
It is important to note that insurance coverage within super can change at any time without your knowledge. It is important to realise that you do not own this policy, they do.
If a super fund allows non-resident insurance payouts today, it does not mean that it will tomorrow. Therefore, we recommend that if you do have insurance cover within retail or industry super funds, you seek confirmation regularly that the policy continues to allow payouts to non-resident members.
You should seek confirmation in writing only, such as via email. This will provide a paper trail and peace of mind should any problem arise down the track.