Insurance is one of the ways we can manage financial risk. Did you know that 83% of Australians have car insurance, but only 31% have income protection?1. It’s crazy, but our ability to earn an income is often the last thing we insure, even though it’s the most fundamental asset we have.

People often assume they won’t suffer a major health issue until they’re old, but it can happen at any time in your life – and the effects can be financially devastating for you and your family.

Some people think insurance is a luxury. But your financial security depends on your ability to earn an income – what if that was suddenly taken away?

How would you pay your rent, home loan, car repayments, and make your credit card repayments? How would you pay the school fees? What if you needed full-time care or had to renovate your home to cater to a disability or buy a specially designed car?

Insurance cover could help reduce the impact of these expenses on your or your family.

What is risk?

Unfortunately, risk is a part of life. Typically, risk occurs around unplanned events that can cause loss and be financially challenging for those who have not considered the consequences. Let’s take a look at a few facts:

  • In 2019, it’s estimated that 144,317 new cases of cancer will be diagnosed in Australia2
  • In 2014, 4.3 million Australians reported having a disability – that’s 1 in 5
  • 45% of Australians aged 16-85 will experience a common mental disorder sometime in their lifetime3
  • It’s estimated you have a 1 in 2 chance of being diagnosed with cancer before age 85
  • Coronary heart disease was the leading cause of death for both males and females in Australia in 2014, followed by lung cancer for males and stroke for females

The stats are alarming – but the reality is that it could happen to you, so it makes sense to be prepared for the potential risks and their impact on your financial situation.

1Lifewise
2Cancer Australia
3Cancer Australia

The main types of insurance

Consider the insurance you need and how much for each type of insurance. Everyone is different – your individual circumstances will determine your level of cover.

Death cover

Simply put, your fund may pay out a specific amount if you die and have current death cover.

The payout on your death will be made from the insurer to the super fund and distributed to your beneficiaries, or your estate.

Careful planning is needed as the payout will be taxed differently depending on who it is paid to.

Total and permanent disablement cover (TPD)

This type of insurance is available to most members and pays a lump sum or monthly income to you if you suffer an injury or illness that means you cannot work ‘in any occupation’.

It’s important to understand the difference between an ‘any occupation’ and ‘own occupation’ definition. You can only purchase ‘any occupation’ TPD insurance within super. This means that, to make a successful claim, you must not be able to perform any occupation for which you are suited by education, training, or experience.

Income protection cover

Income protection cover is another type of insurance option available to most members. This insurance provides monthly payments if you are temporarily unable to work in your occupation.

It’s important to understand that any forms of income (including paid leave) are offset against income protection payments. This means you can’t receive an income protection payment for the same day you’re receiving a sick or annual leave payment or, indeed, any other type of income (unless the income protection payment would be greater – in that case, you’d receive a ‘top up’ of the difference).

The concept of offsetting income protection is common practice in the insurance industry and ensures that members don’t receive a higher income while temporarily disabled than they would if they were working on full duties.

Please refer to the information booklets for your division for more details on how your benefits are calculated, what you are eligible for and the conditions that apply.

The difference between automatic and voluntary cover

Automatic cover

You don’t need to apply to provide evidence of your current state of health to receive automatic insurance cover.

There are automatic cover limits, meaning that if the sum insured exceeds a set limit, evidence of current health is required to purchase insurance above the automatic cover limit.

An automatic cover amount is usually a basic level of insurance cover, so it’s important to consider whether or not you need to add to it.

When you joined Qantas Super, you automatically received default death and total and permanent disablement (TPD) cover (subject to meeting eligibility conditions). The ‘Protecting Your Super’ legislation means that from 1 July 2019, insurance cover is removed from accounts which have been inactive for more than 16 months, unless you specifically opt-in and request the Trustee keeps this insurance in place.

You can call us to see what type of insurance you have.

Voluntary cover

You must apply to obtain this type of insurance. You’ll need to submit an application that includes information about your current state of health.

The benefits of insurance through super
Premium tax rebates

Insurance premiums receive a rebate of up to 15%

Easy to manage

You don’t need to use cash to pay for cover or worry about missing a bill – the cost is automatically deducted from your super account

Competitive offer

Your insurance is part of a policy that covers a large group of members – this means the cost is generally lower than if you took out the cover as an individual

Automatic coverage

99% of all cover is accepted without underwriting, regardless of your occupation, meaning you don’t have to go through medical checks in most instances

Case study: insurance through super

Lleyton is 38 years old and contributes to a well-known super fund. His employer makes contributions to the fund.

Lleyton is on the marginal tax rate of 37% plus 2% Medicare levy4. He has a super balance of $100,000. Lleyton has insured his own life with an ordinary life insurance policy, outside his super, to help support Kim in the event of his death. The sum insured is $750,000. The annual premium is $2,000, which Lleyton pays from his after-tax income.

What might be a better strategy for Lleyton?

It could be more tax effective for Lleyton to have an insurance policy within his super fund.

Lleyton could arrange with his employer to salary sacrifice an additional $2,000 to cover the life insurance premium. The benefits of structuring the life insurance like this are:

  • Lleyton’s annual life insurance is now paid with pre-tax dollars and the cost will effectively be reduced by 39%. This is because Lleyton needs to earn a gross amount of $3,280 to take home the $2,000 required to pay for his premium outside super – a saving to Lleyton of $1,280
  • There will be no tax payable on the life insurance premium, as the fund is able to obtain a tax deduction for the premium which effectively offsets any contributions tax that would otherwise have been payable

Note: This example assumes that Lleyton can get the same level of insurance cover on similar terms and conditions from his super fund.

While Lleyton may benefit from tax savings, this is not the only reason a person would choose insurance inside super rather than outside.

4Assumes 2019/20 marginal tax rates

You can find out how much insurance cover you may need and how much it will cost using the ASFA Insurance Needs Calculator.

Other info you might be interested in

The basics of super investments

Whether you’re just starting out or nearing retirement, it’s important to take an interest and make your super investment work for you.

Understanding risk and diversification

Investment risk is the chance that the value of an investment will drop. All investments have risks.

The basics of retirement

It’s important to think about how far your super will stretch, and whether it will be able to provide you the lifestyle you want

Learning Hub

Understand your super and the simple steps you can take to stay in control.

Calculate your insurance needs

Our calculator can help you decide if you have enough insurance cover for death, disablement and income.

Need help with your insurance?

Call us to learn about the insurance you have through your super. We can help assess how much insurance you need and work through any applications you’d like to submit for extra or reduced cover.