Many superannuation plans include insurance as part of their offer, as it may be a benefit to members of the super plan. Insurance inside super is often general cover that’s provided to a set group of people and can help protect them and their loved ones if something were to happen.

What is insurance inside super?

Video transcript

We all know what insurance is, it’s where you bet against yourself in a race against life’s… mishaps.

But did you know that you can get insurance inside your super? If you’re a member of a super fund, and you joined that super fund through your employer, then it’s likely that you’ll have insurance inside your super.

Insurance inside super generally offers three types of cover:

  • Life insurance, which either pays out when someone dies or when they’re diagnosed with a terminal illness.
  • Total and permanent disability insurance, which pays people who have become disabled and unable to work.
  • And, income protection, which provides a replacement income of up to 75% of a person’s regular income, if they can’t work due to illness or injury.

Now these scenarios might not be fun to think about, but not thinking about them is even less fun in the long run. So, how does it work?

For starters, all insurance policies require the payment of insurance premiums, however, when you have insurance inside super, those premiums are deducted from your super account balance. It’s also important to know that funds in the super account may diminish if contributions aren’t regularly made, the types and level of cover may be limited, and cover will end when the super owner reaches a certain age.

However, there are also a lot of upsides to having insurance inside your super.

  • It can be cheaper, given most super funds purchase their insurance policies in bulk.
  • When insurance premiums are paid from super, take-home pay won’t be affected.
  • There may be tax benefits as the premiums are being paid out of pre-tax super contributions. Though it’s worth noting that tax may be payable on life and total and permanent disabilities payout.
  • And, a majority of the time, medical exams won’t be required - so, no turning and coughing - which is a plus.

More than 70% of Australians currently have their life insurance policies held inside super. Contact your super fund to see if you’re one of them.

[into phone]

Hello, I’m calling about insurance.

Many superannuation plans include insurance as part of their offer. If you joined your super fund through your employer, then you likely have insurance included. There are three main types: life insurance, total and permanent disability and income protection.

 

How it works

  • Your insurance premiums are paid out of the money in your super account. So, it’s one less expense that you need to budget for from your take-home pay.
  • As the insurance is held in your super account, any proceeds are paid to the super fund.

What’s group insurance?

When insurance inside super is provided to a set group of people, like employees of a company, it’s known as group insurance.

Group insurance is generally considered the number one way for Australians to access affordable cover1.

Getting group insurance also doesn’t usually require underwriting – a process of health and lifestyle questions insurance companies ask, to help them assess the suitability of cover for an individual. It’s important to note, though, that group insurance policies aren’t tailored to individual needs and circumstances.

Types of insurance attached to AMP super accounts

Life insurance
Total and permanent disablement (TPD) Temporary salary continuance (TSC)

Sometimes called death cover, life insurance works by providing a lump-sum payment to your super account if you die or become terminally ill.

It can be used to help support your loved ones financially, with costs like a mortgage, or other debts as well as your family’s future expenses to help maintain their lifestyle when they need it most. So, it’s important to consider who your super benefits will go to if you die. 

TPD cover provides you with a lump-sum payment if you suffer a disability that prevents you from ever working again.

This cover could help you pay for ongoing medical expenses, alterations to your home to make
day-to-day life easier, and help provide future financial stability.

TPD is generally only available if you also take life insurance and normally, the amount of your life insurance cover will be reduced by the amount of any TPD claim that is paid.

Your ability to earn an income is likely to be one of your most valuable assets in life. 

TSC, also known as income protection, is designed to pay a monthly benefit of up to 75% of your pre-disability regular income if you’re unable to work due to injury or illness.

Typically, within super, income protection provides you with cover either for a two-year period or until you turn 65.

 

 

     

To understand if you have insurance inside your AMP super account, check your member statement or login to My AMP. You’ll get a clear picture of your cover type, as well as the amount of cover you have, and its costs.

 

Understand your insurance needs

As life changes, your insurance needs may too. It’s important to regularly review your cover to make sure it continues to be right for you.

To understand your insurance needs, ask yourself how much money your family would have if you were to die or become disabled. Then compare that with how much money your family might need in the same situation – including how they’d manage paying for day-to-day costs like child care and mortgages. The difference between the two can give you some guidance for how much insurance you may need.

Our insurance needs calculator can help you estimate how much cover you may need based on your circumstances.

How it was worked out

The super account provided through Jason’s employer offers six units of life insurance and TPD cover.

One unit equals 2.5% x Jason’s salary x the number of years until Jason turns 65. So:

1 unit = (2.5% x $50,000) x 40

1 unit = 1,250 x 40

1 unit = 50,000

6 units = 300,000

Because Jason felt his circumstances required more insurance than the $300,000 default amount, Jason increased his cover to $1.5m for peace of mind. The payments for this insurance come out of Jason’s super.

Example: Jason’s insurance was not giving him peace of mind

Jason is a 25-year-old IT manager who earns $50,000 per year. He has a home loan and twin newborn baby girls, so he’s keen to make sure his family is well protected if something happens to him.

When Jason started his job, he signed up to the default AMP super plan offered by his employer. The amount of insurance cover he received was calculated using his salary and age, and equates to $300,000 of life insurance and TPD cover, at a cost of $201 a year (the premium is paid out of his super).

Jason was unsure if the default amount of insurance was enough to cover his liabilities and family, so he decided to check his insurance needs using the AMP insurance calculator.

The results of the calculator showed that his circumstances may require $1.5m of Life and TPD insurance.

On reflection, Jason decided this was a better option for his family, so he called AMP and asked to increase his cover to $1.5m at an annual cost of $1,005.

Jason feels relieved that his family is financially protected if he dies or becomes too injured to be able to work.

How it was worked out

The super account provided through Alena’s employer offers six units of default life insurance and TPD cover.

One unit equals 2.5% x Alena’s salary x the number of years until Alena turns 65. So:

1 unit = (2.5% x $100,000) x 30

1 unit = 2,500 x 30

1 unit = 75,000

6 units = 450,000

Alena also receives income protection at 50% of her salary.

Her current annual insurance fees cost $315 for life insurance and TPD, $570 for income protection, totalling $885 per year.

Upon review, Alena decided to change her insurances to match her circumstances, so if she becomes too injured or sick to work for a long period, she will continue to have insurance to cover part of her salary. The new insurance payments of $1,030 per year will come out of her super.

Example: Why Alena reduced her life and TPD insurance

Alena is a 30-year-old events manager earning $100,000 per year. She has no children, loves surfing and rents an apartment overlooking the beach.

When Alena started her job, she chose to sign up to her employer’s default AMP super account. It included $450,000 of life insurance and TPD cover, as well as $4,166 per month of income protection insurance and was calculated according to her age and salary. Alena’s annual insurance fees currently cost her $885.

Since Alena has no debts or dependants, she decided to review her insurance using the AMP calculator. It suggested a lower amount of life and TPD cover, but a higher amount of income protection (75% of her salary).

Alena talked to the workplace financial adviser and decided to decrease her insurance to $250,000 of life and TPD insurance and increase her income protection to $6,250 per month. The annual fee for her new insurance amount costs $1,030 ($175 for life and TPD and $855 for income protection).

If Alena’s circumstances change down the track, she’s ready to review her insurance again, to make sure it continues to provide the cover she needs.

Changing your insurance amounts

It’s always a good idea to talk to your financial adviser before making any decisions about your super or insurance. That way, you can receive advice around what the most suitable options are for your circumstances.

Once you’re clear on the changes you’d like to make to the insurance inside your super account, you can do so via your adviser, or by simply giving AMP a call.

Be prepared that you may need to provide additional information or go through a medical underwriting process.

Also, remember if your employer pays for your insurance, and you decide you’d like more insurance than what you’re currently receiving, you may need to pay the difference out of your super account.

Things to consider

Below are things you might consider when deciding if insurance inside super is right for you and your circumstances.

Benefits of insurance inside super Considerations
The costs of insurance premiums come out of your super account, so you won’t be dipping into your take-home pay. Cover through super often ends when you reach a certain age (usually 65 or 70). That’s different to cover purchased outside of a super account.
If premiums are automatically deducted, your insurance may be easier to manage. Paying insurance premiums via your super account could decrease your super balance.
It can be tax-effective2 because you pay for the cover from your super contributions (which are generally taxed within the fund at 15%) instead of your take-home pay which is taxed at your marginal tax rate, which could be a higher rate. Payouts to non-dependants would be subject to tax at each non-dependant’s marginal tax rate.
You can also still claim a government co-contribution if you're eligible. Taxes may be applied to TPD benefits depending on your age.
You may have an automatic acceptance limit (AAL) which means you may be insured up to certain pre-agreed levels without needing to provide health evidence, otherwise known as underwriting (if certain conditions are met).

There are conditions to applying for additional cover which may mean you’ll need to go through underwriting.

If you have more than one super fund with insurance, you may be doubling up on insurance premiums and usually you can only claim on one insurance policy.

If you are in a super fund sponsored by your employer, they may have negotiated a bulk insurance rate which is often more competitively priced. Claim payments may take longer as the money is normally paid by the insurer to the trustee of the super fund before it’s paid to you, and tax may be payable on some claim payments.
 

The insurance options in super may be limited, compared to insurance held outside super. For example, trauma cover is not available inside super. 

And, if you decide to change super funds, you may also need to change your insurance policy.

1  'Fiscal Impacts of Removing Insurance in Superannuation' Rice Warner 2018.

2  Taxation issues are complex and the decisions you make can affect the amount you receive at claim time. You should seek advice to determine whether holding insurance through super is appropriate for you. The insurance premiums are deducted from your super balance, reducing the money available for your retirement. If you are not making regular contributions to your super, the deduction of premiums may impact your retirement savings balance over time.

Subscribe to our newsletter

Important information

This information is provided by AMP Life Limited. It is general information only and does not take into account your personal objectives, financial situation or needs. It’s important to consider your particular circumstances and the relevant product disclosure statement or terms and conditions, available by calling 13 30 30, before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.