Many Australians are not even aware they hold insurance through their super fund. Although many funds automatically provide you with life cover and disability insurance, not all of them do. Some will also automatically provide income protection insurance.

Total Permanent Disability (TPD) insurance cover in super usually ends at age 65. Life cover usually ends at age 70. Outside of super, cover generally continues as long as you pay the premiums.

Up until recently, insurance cover through a super account was automatic, which means the insurance premiums are deducted from your super balance. This reduces your savings for retirement and you can opt out.

The financial services regulator, ASIC, has turned its attention to the quality of insurance being offered by funds and has directed them to improve their policies, and outcomes, to members.

This follows a review by ASIC last year of 15 superannuation trustees to enhance their life insurance. The review looked at whether trustees had made progress in addressing the issues raised by ASIC in various public communications since 2019 and were meeting new regulatory obligations.

‘Whether it is default or optional insurance, we want fund members to have confidence that they are receiving value for the insurance they hold through their super and that they will be able to claim on it when they need to,” ASIC Commissioner Danielle Press said.

Funds are encouraged to thoroughly analyse their insurance arrangements, address any gaps, and ensure they have robust systems, processes and controls to effectively administer their insurance arrangements.

The regulator warns it will use its powers where trustees are not complying with their obligations.

ASIC's Moneysmart website has more information for consumers on holding life insurance through super.

ASIC and the prudential regulator, APRA, have jointly voiced concern about the super industry’s holding of unlisted assets into which your funds are invested.

The regulators have warned the industry to proactively update the values of their unlisted assets, as the international financial and property sectors can experience volatility. 

This ramps up a previous warning by the regulators that funds should improve the quality and frequency of their disclosure and valuation of unlisted assets, which account for as much as a third of many funds’ overall investments.

Unlisted assets include non-share assets, such as convertible bonds, and real estate such as massive infrastructure and commercial property portfolios. For example, office blocks retain their value on funds’ lists even though they have potentially dropped in value because of the COVID-inspired shift to working from home.

The Australian Financial Review (AFR) reports the crackdown comes as valuers warn that prime CBD office blocks could drop in value by as much as 20%. Last year, REST super fund pulled a property from sale after receiving bids 15% below book value.

It is estimated that big super fund Cbus has 12% of its MySuper default option in property, and 40% of that is invested in commercial offices.

“Hostplus and Rest Super’s property investments are also in the double digits, with 11% of funds in their default options in the sector, followed by the Australian Retirement Trust (8.5%), Aware Super (7.7%), AustralianSuper (6.75%) and HESTA (6%)”, according to the AFR. 

Pros 

• Cheaper premiums. Super funds buy insurance policies in bulk.

• Easy to pay. Premiums are automatically deducted from your super balance.
  

• Fewer health checks. Most super funds will accept you for a default level of cover without health checks. However, you should check the product disclosure statement (PDS) to see the exclusions and treatment of pre-existing conditions.

• Increased cover. You can usually increase the amount of cover you have above the default level, although you'll generally have to answer questions about your medical history and have a medical check.

• Tax-effective payments. Your employer's super contributions and salary sacrifice contributions are taxed at 15%. This is lower than the marginal tax rate for most people. This can make paying for insurance through super tax effective.

Cons 

• Limited cover. Default insurance through super isn't specific to your circumstance and some eligibility requirements may apply.

• Cover can end. If you change super funds, your contributions stop or your super account becomes inactive, you could end up with no insurance.

• Reduces your super balance. Insurance premiums are deducted from your balance, reducing your savings for retirement.

Related reading: ASIC, Money Smart, AFR