Duplicate superannuation insurance

Insurance in superannuation accounts offers valuable protections against death and injury, but it is a good idea to review your cover to make sure you are not paying for multiple policies or protections you don’t need.

Consumer group CHOICE has found that consumers are spending up to $1.96 billion a year on unnecessary duplication of insurance policies through membership of multiple super funds.

“The confusing and complicated nature of superannuation is leading consumers to waste on average $131 a year,” CHOICE campaigns chief Erin Turner said. The cost of one excess insurance policy would slice $16,000 from a retirement balance.

The duplication results from the fact that super funds must deliver life insurance to all accounts unless members choose to opt out.

People who have worked in different industries may find that they are members of more than one fund and, consequently, have multiple insurance policies they may not need.

“So we’re encouraging consumers to consolidate their super funds and invest in their own retirement, not an insurer’s bottom line,” Ms Turner said.

Even for those with one fund, Rice Warner’s research shows that the costs of insurance can cripple retirement plans, with some policies cutting retirement nest eggs by up to 34 per cent, or $606,815.

Insurance costs in super

Premium type

Retirement balance – no insurance

With death and TPD

With death, TPD & IP

Account reduction option one

Account reduction option two

white collar average






heavy manual average






white collar high






heavy manual high






Source: Rice Warner

The costs of insurance depend on a wide range of factors including the nature of the job you do and the amount for which you are insured. If, for example, you do dangerous work on a building site then the premiums will be higher than if you work in an office lifting papers and manipulating computer mice.

This is borne out by the above chart, which shows much higher premiums for heavy blue collar workers. But even within categories, premiums vary markedly. That is partly because different premiums offer different benefits and also because insurance companies offer group policies to each super fund depending on its member makeup and claims history.

For example, a white collar worker with an average policy will lose 5.2 per cent with option one (including death and TPD) insurance and 9.9 per cent with option two, which also adds IP; while someone with a similar job with a high premium policy will lose 10.2 per cent and 21.4 per cent respectively.

As the table also shows, people choosing to add income protection insurance (IP) to the basic life and total and permanent disability (TPD), add significantly to the cost of their policies.

A superannuation industry insider, who did not wish to be named, said young people particularly can lose out through unnecessary insurance. “If you look at young people and students working part time, you find that insurance costs and fees might eat up $6000 to $7000 over four or five years, leaving them with nothing in their balance.”

“What good is life insurance to an 18-year-old with no dependents,” the insider said. The super industry needs to make it easier for people to opt out of insurance and ensure that option is widely understood, the observer said.

Check your policy details

“Insurance is a vital benefit of compulsory super that provides millions of Australians with access to affordable and cost-effective coverage – and provides real and vital benefits for many thousands of Australians each year.  Any lessening of these benefits would be a reduction in the social safety-net,” said Australian Institute of Superannuation Trustees policy director, David Haynes.

“Group coverage is particularly important for many ‘high-risk’ occupations and industries that find it expensive and hard – if not impossible – to obtain cover elsewhere,” he said.

Super fund members need to check their insurance cover to make sure it fits their needs, “particularly after key milestones such as changing jobs or having children,” Mr Haynes said.

Those unhappy with their super costs have the option of, in some cases, changing their level of cover and moving to another super fund offering a better insurance deal.

The superannuation and insurance industries are reviewing the situation through the recently-established Insurance in Superannuation Working Group.

This article was first published on thenewdaily.com.au

YourLifeChoices Writers
YourLifeChoices Writershttp://www.yourlifechoices.com.au/
YourLifeChoices' team of writers specialise in content that helps Australian over-50s make better decisions about wealth, health, travel and life. It's all in the name. For 22 years, we've been helping older Australians live their best lives.
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