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Most super funds provide insurance. Insurance cover offered through super is usually based on group rates and a standard set of benefits. This enables the fund to provide lower insurance premiums as they are effectively buying the insurance in bulk, and benefiting from economies of scale. The insurance premiums provided through super are usually outlined either in the fund’s Product Disclosure Statement (PDS) or in a separate PDS.
Death Only Cover (Death)
This is usually a lump sum benefit which is paid to your nominated beneficiaries if you die. For insurance through super there is usually a maximum amount for which you can be automatically insured without providing medical evidence. Any additional amount above this maximum will require underwriting (the assessment of further medical evidence).
Death and Total & Permanent Disablement Cover (DTPD)
This is usually a lump sum benefit which is paid to your nominated beneficiaries if you die or if you suffer an illness or injury that causes you to permanently cease employment. With this type of insurance through super there is usually a maximum amount for which you can be automatically insured without providing medical evidence. Any additional amount above this maximum will require underwriting (the assessment of further medical evidence). Some policies will pay on the diagnosis of a terminal illness.
Note: Ensure that you read the PDS carefully as there are different definitions of what constitutes disability. Some policies will only pay a benefit if you can no longer work at all (in any job), while others will pay if you cannot continue in the particular type of job in which you were employed.
Group Salary Continuance (GSC)
This is also known as income protection insurance, and is a monthly income benefit payable if you are unable to work due to illness or injury. There is usually a waiting period prior to the commencement of any payments, a maximum length of time for which the payments will continue, and a maximum monthly amount. However, as with all insurance, it is possible to modify the terms and conditions in exchange for a higher premium (which may require underwriting).
Most insurance offered through super is based on group rates and a standard set of benefits. This allows the premiums to be offered at lower rates to those found outside super. The automatic acceptance level is the maximum level of cover (amount insured) that is available without the provision and assessment of medical evidence. This varies from insurer to insurer.
This varies from person to person, depending on your individual circumstances.
When deciding which level of cover you need, you should consider the following:
As you accumulate liabilities and have a family or other dependants, the need for insurance increases. However, when you approach retirement you are more likely to have accumulated assets and paid off any major liabilities. Your children are more likely to have left home and the need for life or permanent disability insurance is significantly reduced.
You should review your insurance requirements annually.
The cost of your premium will vary depending on which super fund you are insured through, and the type of cover you select. Other factors affecting the premium may include your age, occupation and current health status.
Generally speaking, Death and TPD cover (insured amount) is based on a multiple of your salary and the years remaining to retirement. As you get older, the level of cover (or amount that is paid out for a claim) will reduce.
For Salary Continuance, the cover is generally based on a percentage of salary up to a maximum AAL (Automatic Acceptance Limit). There is usually a waiting period from 30 - 90 days before payment commences. These payments can be effective for 2 years or until age 65.
Note: Be mindful of death benefits paid to non-dependants. From 1 July 2007, death benefits paid to non-dependants can only be in the form of lump sum payments, rather than as an income stream. The taxable component of a lump sum superannuation death benefit received by a non-dependant, regardless of their age, is assessable income. The taxed element in the fund will be taxed at a maximum rate of 15%, while the untaxed element will be taxed at a maximum rate of 30%.
If you die while you have money in your super fund account, then the balance of this account/s will be paid to your eligible beneficiaries. The Trustee will consider your personal circumstances, including the beneficiary that you nominated, and determine to whom the benefit will be paid. If you do not have a binding death nomination in place, then your money may not necessarily go to the people you had wished it go to.
In the event of death, a Binding Death Nomination means that an employee's superannuation benefit (including any insured benefit) must be paid to his or her dependant/s and/or the employee's legal personal representative (i.e. the estate).
It's important that you keep your beneficiary nomination current and update it whenever personal circumstances change. You can create or update your beneficiary nomination by completing a Binding Nomination Form.