Super insurance: wide coverage, limited understanding
The overwhelming majority of Australians with life and permanent disability insurance obtain that cover through their superannuation funds.
Insurance is a critical benefit of being a super fund member for most of us.
Unfortunately, a survey by the Association of Superannuation Funds of Australia (ASFA) has found that many super fund members have a minimal understanding of their insurance cover.
This lack of knowledge can lead to members being underinsured with possibly severe financial consequences for their families in the event of death or permanent disability.
Based on a recent survey, ASFA reports that more than 40 per cent of fund members have a "poor understanding" of the insurance provided by their super fund.
Key findings include:
- More than 40 per cent of fund members have no understanding, very poor understanding or reasonably poor understanding of the insurance in their super fund.
- More than 50 per cent of Generation Y aged under 32, have no understanding, very poor understanding or reasonably poor understanding of the insurance in their super fund.
- Just 12.3 per cent of members regard their understanding of insurance in super as "very good" with 46.4 per cent regarding their understanding as "reasonably good".
ASFA has published a brief guide to super fund insurance. Despite the guide's simplicity, it provides a useful starting point – particularly given that knowledge of insurance in superannuation is so limited among many members.
- Super fund members, ASFA suggests, should ask a series of questions regarding their insurance cover. These include: What types of insurance cover do I have? If I die, how much will my family get? Can I increase my level of cover without having a medical test? What happens to my insurance if I leave my current insurance fund?
- Having adequate insurance cover is a fundamental part of sound financial planning. It is well worth discussing with a financial planner.
- The latest Underinsurance Research Report, published in December last year by Rice Warner Actuaries calculates that a typical couple aged 40 with children requires life cover of 10 times earnings simply to repay debts and maintain living standards.
- How does your life and permanent disability insurance cover measure up given your family's circumstances?
By Robin Bowerman
Principal & Head of Retail, Vanguard Investments Australia
18th September 2014