3 Ways to Buy Life Insurance in Australia

Life insurance can help support your family if something goes wrong.

Life insurance in Australia can be bought in one of 3 ways:  

  1. Through a financial adviser  
  2. Direct with an insurance company, or  
  3. Held inside your super, which is the case for most Australians 

No matter where you purchase your life insurance from, the core idea is the same: if something happens to you that is covered in your policy – your family will be paid a certain amount to support them through the difficult changes. 

But there are some important differences you need to be aware of… 

Insurance through an adviser is tailored to your needs

When you buy a policy through a financial adviser you’re buying the policy as an individual.  

This means the policy can be tailored to your personal needs and circumstances. A financial adviser will carry out a detailed needs analysis for you. This ensures the amount you pay and the cover you have is just right for you personally.  

Another benefit of buying through an adviser is they can help you access insurance policies that you can pay for through your super. 

Insurance purchased directly through insurance companies does offer some limited flexibility.

Buying insurance directly from an insurance company (generally online) offers some flexibility and benefits.

This can be effective if you have a clear understanding of your financial position, and if you have relatively simple insurance needs.  

Direct insurance can sometimes be more cost-effective than insurance through an adviser (not always), but is generally more expensive than Group Insurance. 

Group Insurance through a super fund is standardised, which can sometimes be great for a basic level of cover 

Superannuation funds buy standardised insurance policies in bulk from insurers, and then offer them to their members to ensure a level of protection for their financial future.  

This means that it is often a cheaper way to access a standard level of cover, and if you fit the fund’s criteria you’re guaranteed to get cover – up to a certain limit. There is no need for the medical checks which are usually required when applying for insurance outside super. 

You may already have life insurance through your super fund and not be aware of it. Some people who have multiple super funds are having insurance premiums deducted from each fund. This is unnecessary and leaves them with less money for retirement.

Group Insurance through super can be a cost-effective and tax-effective way to fund your premiums. You will get access to basic levels of cover that can, in some cases, be easily upgraded. However, there are some important limitations to consider: 

It’s a minimal level of cover 

  • The amount you’re covered for inside super may not be enough to provide the protection you need. 
  • You can often top up your level of cover inside super, but there are limits on how much insurance you can get without a medical assessment. 

It may take longer for your claim to be paid 

  • When you claim on your insurance through super, the benefit is paid to the super fund first – in some cases slowing down the payment to you or your beneficiaries. In the case of life insurance, there is no guarantee that the payment will go to the right person.

Income protection benefit payments may stop after two years 

  • Benefit payments on income protection claims outside super often pay you up to the age of 65 
  • Inside super, this benefit typically runs out after two years, which isn’t enough for many people.

Not all cover types are available through super 

  • Insurances such as trauma cover for you or your children, or own occupation TPD are not available under superannuation. This could potentially leave a gap in situations where a critical illness or injury occurs and immediate financial relief is needed.  

Your retirement balance can be impacted 

  • If you pay insurance premiums from your super contributions, that means there is less money available in your account. Over a long period of time, this could mean having less money for retirement – especially when you consider the effect of compounding over time. 

Your life insurance benefit payments might be taxed up to 32% 

  • Generally, life cover payments for an insurance policy outside super are tax-free, regardless of who receives it. 
  • In most circumstances, only dependants defined under the Superannuation Industry (Supervision) Act 1993 – which could be a spouse, a child under 18, or anyone shown to be financially dependent on the deceased – can receive the benefit tax-free. 
  • It’s important to note that, generally, if the lump sum benefit is paid to anyone else, including an adult or a non-dependent child, it will be taxed up to 32%. 

Want to know more? 

If you’re concerned that you may not be getting quality cover through the insurance in your super fund, you can request a free insurance in super review.

Our advisers will take a look at the insurance you have inside your super and check whether this cover is appropriate for your needs. They can even help you find a better quality life insurance policy, often at no extra cost.

To request a free review, please click here.

Alternatively, if you’d like to discuss any of the content in this article and how it may apply to you, please call us on 1300 78 55 77.