A new year is a good time to review how insurance premiums may be eroding your super balance.
With the New Year still in its early stages, many people use the holidays to reflect on their achievements throughout the past year. This often includes financial considerations, such as how much you have saved, how big a dent you may have made in your mortgage or how much you have invested.
However, one of the often forgotten considerations is the performance of your superannuation fund, both in terms of your investment returns and your level of contribution. Another key factor that many people don’t take into account is their level of life insurance cover. Insurance cover continues to be a key issue within Australia, with the majority of households deemed to be under-insured in terms of life and disablement cover when compared to world standards.
Whilst very few people hold life insurance directly through an insurance policy with a financial institution, almost all Australians with a superannuation account will hold some form of insurance cover through their superannuation fund. The cost of this insurance cover is deducted from the account balance in the fund.
In recent times, the cost of insurance cover within superannuation has increased significantly for many funds, mainly due to there being greater awareness of the insurance held, resulting in more claims being paid.
Many members would have received communications from their superannuation fund outlining the increase in the cost of cover but, like many, we are often too busy to take much notice. Through SuperRatings research, we have seen increases in the cost of life and disablement cover in superannuation of up to 156 per cent during the most recent year. What this means for someone who may have been paying $350 per year for $300,000 of life and disablement cover, is that they could now be paying as much as $890 annually.
As this premium is deducted from your superannuation account and not directly from your hip pocket, the increased cost will have a direct impact on the final benefit you receive from your superannuation fund when you retire. On this basis, it is very important to take the time to review how much cover you have in your fund and what the cost of this is to ensure it is appropriate for your needs and doesn’t drain your retirement savings.
Whilst insurance is very important, individuals should also ensure their superannuation fund is working at its best for them in relation to the levels of investment return achieved as well as the fees charged.
So to ensure you are well positioned for 2015, include a review of your superannuation fund within your New Year’s resolutions and take the time to look at not only the fees you are paying, but also your investment returns. It would also be an opportune time to review the level of insurance and its cost to ensure it remains appropriate for your personal situation.