Understanding Insurance in Super
Written by Regina Hocking, Financial Adviser & Director of Rebel Wealth Management Pty Ltd.
When it comes to protecting yourself and your loved ones, personal insurance plays a vital role. After all, YOU ARE YOUR BIGGEST ASSET! Say it louder for those at the back!
Good health goes hand in hand for good wealth building and ultimately; having choice and flexibility to live the best life you dare dream possible.
If you can't use that magnificent brain and body due to serious illness, injury, disablement or worse, pre-mature death you may be unknowingly jeopardising yourself and your family.
Generally, exerting yourself with your amazing work expertise and skills to earn an income, build a side hustle and build assets to provide passive income are the key to any solid financial plan.
That or some really wealthy parents to help kick start you!
Although not many enjoy that luxury.
You may not have thought about your own personal protection plan before, however, this article is here to trigger some personal reflection and inspire conversations with your partners and family. Hopefully this will assist you take positive steps to reviewing your personal protection strategies and products.
I am extremely passionate about sharing my expertise and profession not only for my clients but general education purposes. I must say that out of all the financial strategies, the Personal Insurance space is quite complex and generally is very misunderstood. Most clients I have had the pleasure of meeting over the last 14 years have been under-educated, under-insured and under-protected. This article will highlight some common differences between industry super fund insurance and retail insurance that is Financial Adviser driven for clients.
Whilst I believe we all want to live a genuine, happy life and have enough money to do as we please, we often can't prevent when we or our family may suffer serious health issues, injury, disablement and in tragic circumstances, pre-mature death. No one plans or wants to need insurance, however, not holding enough of a financial buffer, whether in the form of cash, investments and/or personal insurance could mean at a time when you are mentally, physically and emotionally suffering, you could also be seriously financially suffering, and no one has time for that!
Imagine it now, you suffer from a serious illness, injury or disease and you do not hold enough savings, have no or incorrect personal insurance in place.... Cue the "Go Fund Me" pleas, the borrowed funds you need to find from family or banks, credit card bills piling up, putting yourself in further debt. That sounds like a lot of stress and reliance on others in the worst possible time of your life - not ideal to say the least.
Navigating the insurance landscape can be confusing. Add in insurance inside your super fund and you may be wondering what it all means and what do you actually need? What is the difference between insurance in your industry fund super account and what can an Adviser provide through retail insurers?
It is important to note, I always recommend seeking personalised financial advice for strategic and insurance product recommendations.
The types of personal insurance that can be held in superannuation is limited to: Life, Total and Permanent Disability and Income Protection cover. These types of cover can also be held outside of super in your individual name, however it is rare to hold insurance policies and not know about them. Most people would notice insurance premiums being paid out of their bank account (particularly in the current cost of living economy), yet it is not common to realise what lies within your super account.
Homework task: Don't roll your eyes, just do it. Promise the satisfaction of being a responsible adult will give you a feel good moment. **Add to the to do list on the fridge: login/phone your super account, review the insurance cover and fees (and investments and beneficiary whilst you're there). You may not understand what it all means - no biggie! Read on.
What insurance can be held in super?
Here is a quick rundown of the personal insurance that can be held in your super account:
Life Insurance: Provides a lump sum payment to your beneficiaries upon your death or diagnosis of a terminal illness.
Total and Permanent Disability (TPD) Insurance: Pays a benefit if you become totally and permanently disabled and are unable to work.
Income Protection Insurance: Replaces a portion of your income, generally 70%, if you’re unable to work due to illness or injury.
What does an Adviser Help with for Personal Insurance?
Personalised financial advice strategies for your insurance requires your Adviser getting to know you personally.
We want to understand your financial position, your Occupation, your family and dependents details, any health issues, family history and past times to name so we can determine your needs for insurance first. We take into account your assets minus debts, your income needs and potential expenses that will need funding if you pre-maturely pass away, fall ill or become injured or become permanently disabled. The aim is to work out what financial safety net you/your partner/your family may require when you can no longer provide financially for yourself and/or your family.
Adviser driven personal insurance strategies and cover can be provided through retail insurers with a guaranteed renewable policy. You may have heard of some of these insurers in Australia, such as ClearView, Zurich, TAL, MetLife, AIA, MLC, NEOS to name a few.
What are Guaranteed Renewable Policies?
These policies guarantee that your cover will be renewed each year until it expires, as long as you pay the premiums on time. Insurers won't cancel or change your cover over time. This gives greater stability and security you can rely on.
What does an industry fund super and insurance look like?
Industry super funds that provide insurance to their members can provide default amounts when you sign up, sometimes they are based on default amounts, sometimes calculated by units, age, occupation, your employer. You may or may not have insurance in your super account. You may have personalised your cover or you may not have touched it at all.
The industry fund super managers engage retail insurers to help shape and provide group insurance offerings to their members. You may have heard of industry funds, such as Australian Super, Hostplus, CBUS, Australian Retirement Trust, REST to name a few. Often the underlying group insurance will be offered by the same insurers that an Adviser can recommend, however they are built specifically for the super fund's bulk cover offering with limited definitions and benefits and are not guaranteed renewable. Meaning, if the super fund changes the underlying insurer and the insurance offering to members, they can change your benefits, costs and insurance cover you may hold at any time.
Below is a list of the main differences to consider when using your industry fund insurance versus personalised advice from a Financial Adviser.
Coverage Type:
Industry funds typically offer group insurance policies that cover a large number of members. These policies may have limited customisation options and may not cater to individual needs.
Advisers can assist clients in obtaining personalised insurance policies tailored to their specific circumstances. Guaranteed renewable cover ensures that the policy can be renewed without medical underwriting, providing long-term security.
Flexibility and Customisation:
Industry fund insurance has limited flexibility and customisation. Members may have little control over policy features, such as waiting periods, benefit amounts, and additional rider benefits.
Advisers can customise policies based on individual preferences, health conditions, occupation ratings, family history, past times and can perform pre-assessments with different insurers to provide the strongest insurance for your individual situation. Clients and Advisers can work together to determine the most appropriate waiting periods, benefit amounts, and additional features to suit their needs.
Waiting Periods:
Industry Fund Insurance generally has fixed waiting periods set by the fund. Members may need to wait before receiving benefits.
Advisers can help clients select waiting periods that align with their financial situation, existing savings, investments or "liquid assets" and risk tolerance.
Benefit Amounts:
Industry fund insurance benefit amounts are often predetermined based on salary or occupation.
Advisers can recommend benefit amounts based on individual income, lifestyle, and financial commitments.
Occupation Definitions:
Industry funds may use broad occupation definitions i.e. Blue Collar, White Collar, Professional. A Mechanic job will fall into Blue Collar but also may sit in a pool with many other manual and possibly high-risk occupations. In regard to Occupation definition for TPD cover (e.g., 'Any occupation').
Advisers will find more specific occupation definitions and ratings i.e. Mechanic - Trade Qualified or Mechanic Supervisor, Trade Qualified with less than 20% manual tasks. Advisers can help clients obtain 'Own occupation' TPD cover, which provides more comprehensive protection for specific occupations.
Premiums:
Industry fund insurance premiums are often standardised for all members, regardless of individual risk profiles. The cover can be more cost-effective than retail insurance in some cases.
Advisers can negotiate competitive premiums based on individual risk factors and preferences. Generally, there is a choice of stepped, premium and sometimes hybrid premium choice. However, if the insurance cover is not reviewed and managed effectively, the premiums can increase substantially over the long term and cover held may not be appropriate.
Guaranteed Renewability:
Industry funds may change renewal terms and members may lose coverage if they leave the fund. The cover benefit can often decrease as members get older.
Guaranteed renewable policies through retail insurance can be renewed without re-underwriting, even if health conditions change.
Advice and Support:
Industry Fund Insurance usually have limited personalised advice. Members rely on generalised fund information.
Advisers provide ongoing support, advice, and assistance throughout the policy term and more importantly at the time you may need to claim. We help manage and monitor this process and in turn hopefully lowering stress levels at a usually difficult time.
Case Study:
Jimmy is a 35-year-old male Mechanic earning $100,000 p.a. He has a partner, two kids and has been concentrating on paying the bills for his family, building some savings in the bank and paying down debt when he can, but is not in a position to self-insure.
When we look at what cover he needs and to keep things simple for this example, we have assumed Jimmy needs $1,000,000 life cover + $1,000,000 TPD cover + $5,833p.m. income protection with a 60 day wait period and to age 65 benefit period.
Industry fund A* quote for the above cover under a Blue-Collar Occupation is $4,846 p.a.
Industry fund B quote for the above cover under a Blue-Collar Occupation is $4,886 p.a.
Retail Insurer A (via Adviser) quote for the above cover under Mechanic specific occupation is $3,006 p.a.
Retail Insurer B (via Adviser) quote for the above cover under Mechanic specific occupation is $3,361 p.a.
As you can see above, for this specific scenario the cover offered via industry fund is not only more expensive, but also not guaranteed renewable for Jimmy. If he is in a position to seek advice, he should contact a professional to assist. He could also self-educate and read more about personal insurance on the Money Smart Website here: How life insurance works - Moneysmart.gov.au
Jimmy could also consult his personal super fund to see what insurance he currently holds, the cost, price and see if they have any resources or tools to assist him.
There are many variables that affect the pricing, insurance cover definitions and offerings based on your personal situation between the different insurers. Always read the Product Disclosure or further information about what your insurance covers. There are no right and wrong ways to structure your personal protection plans. Generally, it is a matter of what works best for you and your situation and gives you the best outcomes for your goals and lifestyle you are wanting to achieve.
If you don't have a Financial Adviser and are interested in finding out more, please browse our website to learn more about our services we offer. You can contact us on the details from the home page here: Rebel Wealth Management Pty Ltd
Please note the above information is general in nature and should be viewed as an educational resource. You should always seek personalised advice to optimise your personal situation.
*The industry funds and insurers above have been kept anonymous as this is used as an educational resource rather than perceived product advice.
Regina Hocking
Director | Financial Adviser FChFP, GradDipFinPlan
Rebel Wealth Management Pty Ltd
Authorised Representative 001234469