The Risk of Relying on Insurance in Your Super

Most Australians have insurance they have never properly looked at.

And the strange part is they are paying for it every month.

Recently one of the largest super funds (Australian Super) announced a 40% increase in insurance premiums for members. For many people this will simply happen in the background. The money will come out of their super account and they will never notice.

That is how group insurance works.

It is automatic, it is simple and it requires no decision.

But simple does not always mean right.

For many professionals in their 30s and 40s, default insurance inside super is one of the most misunderstood parts of their finances.

You technically have cover but very few people know what they actually have.

How much life insurance is there?
How much income protection?
How long would it last if something went wrong?

Most people cannot answer those questions.

And when you look closely, the cover often does not match the life they are building.

A common situation I see is someone earning a strong income, building a career, raising kids and carrying a mortgage. Their financial life has grown quickly but their insurance has not kept up.

The default cover they received when they first joined their super fund might have been designed for someone earning half their income.

That gap only becomes visible when you actually review it.

Another issue is that group insurance is designed for the average member. It is priced and structured to cover a broad population.

That means the terms are not always tailored for professionals, business owners or people with complex work lives.

I saw this recently while reviewing insurance for a client.

He works in a professional role and travels overseas for work several times a year. On top of that he takes a family holiday overseas every year or two.

When we looked at his existing insurance inside his industry super fund, the cover had restrictions around events that occur overseas.

Most people never check this.

Travel has become a normal part of life for many professionals. But some default policies still contain limitations that could matter if something serious happened while you were outside Australia.

We compared that policy with an alternative individual policy.

The differences were significant.

The alternative policy had stronger definitions. Better coverage for overseas events, and importantly it was about 20% cheaper.

That surprised him.

Many people assume insurance inside super is always the cheapest option. Sometimes it is but not always.

Group insurance works by pooling members together, the pricing reflects the overall risk of the entire group.

If you are a high income professional working in a low risk occupation, you might actually be subsidising the risk of others in that pool.

An individually underwritten policy can sometimes recognise that lower risk and price accordingly.

This is where the comparison becomes valuable.

It is not simply about price.

It is about understanding three things.

First, the amount of cover you have.

Second, the quality of the policy and its definitions.

Third, whether the cover actually fits the life you live today.

Your insurance should reflect your income, your family responsibilities and the financial structure you are building.

Default cover rarely does that on its own.

This does not mean group insurance is bad.

For many Australians it is a useful starting point. It provides a level of protection without requiring medical underwriting. For some people with health conditions it may be the only practical option.

But relying on it without ever reviewing it can be risky.

Especially if your income has grown, your family situation has changed or your financial commitments have increased.

Insurance is one of those areas that sits quietly in the background.

Until the moment it matters.

That is why a simple review can be valuable. Compare what you have through your super fund with what exists outside it.

Sometimes the default option will be fine.

Other times you might find better terms, stronger protection or even a lower cost.

But the key outcome is clarity.

You understand what you have and why you have it, and if something ever goes wrong that really clarity matters.

Want to know more?

1) You can click here to book a free 15-minute free clarity call with Sam Woodhouse to discuss how this may relate to you.

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The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.