Life insurance in super: costs on the way up?

It is estimated that around 70% of Australians with life insurance hold it through their super fund. Having insurance through your super fund is tax-effective and has various advantages such as having cheaper premiums and usually having fewer health checks. Most funds offer three different types of insurance through super, life insurance, total permanent disability (TPD), and income protection insurance, each of which cover different aspects.

Life cover pays a lump sum or income stream to your beneficiaries when you pass away or if you have a terminal illness. TPD insurance pays a benefit in instances where you become permanently or seriously disabled and are unlikely to work again, while income protection insurance pays a regular income for a specified period if you can’t work due to temporary disability or illness.

Through your super, you could have one or all of the above insurances, with premiums automatically deducted from your super balance. If that’s the case, you should regularly review the amount of premium paid in light of a new and concerning development highlighted by APRA which may see the costs of insurance within super go up.

According to the data collected by APRA on life insurance claims and dispute statistics, premiums per insured member within super funds had been escalating during 2020. It has likened the situation to trends that occurred between 2012 and 2016 years, where, after a period of significant premium reductions and benefit increases, insurers experienced significant losses. These losses then resulted in large premium increases along with the introduction of more restrictive cover terms.

APRA notes that should these trends continue, super members, are likely to be adversely impacted through further substantial increases in insurance premiums and/or a reduction in the value and quality of life insurance in superannuation. It goes as far as saying that the ongoing viability and availability of life insurance through super may be at risk which will impact a large proportion of the population.

However, it’s not time to panic just yet, what you can do is keep an eye on your insurance premiums to ensure that your super is not being unreasonably eroded. Many super funds also allow you to adjust your insurance (either up or down) to suit your situation, with corresponding premiums. For now, APRA is continuing to monitor the situation to ensure that RSE licensees take the appropriate steps to safeguard the pricing, value, and benefits for members that adequately reflect the underlying risk and expected experience.

If you’re not happy with the price of cover or the level of cover you’re receiving inside super, you can always obtain additional insurance outside of super. It should also be noted that cover inside super can end without you knowing in certain circumstances such as when you stop contributions (for example, if you’re in between jobs) or if your super account becomes inactive.