Debunking superannuation insurance myths – some common misconceptions – Insurance Laws and Products

Superannuation insurance is a crucial
component of Australia’s retirement savings system, providing
financial protection to you as an individual and your family.
However, like any complex financial product, superannuation
insurance is often surrounded by a number of myths and
misconceptions. In this article, we will debunk five prevalent
myths about superannuation insurance and shed light on the facts
that individuals need to understand to ensure they have the right
product and have protected themselves for the future.

Myth 1 – I only need to worry about
superannuation insurance when I am older

One common misconception is that superannuation insurance is
primarily designed for older individuals approaching retirement
age. In reality, superannuation insurance is relevant for
individuals of all ages, especially those in the workforce. Many
superannuation funds automatically provide insurance cover to their
members, offering protection against unforeseen events such as
disability or death. Having insurance in place during your working
years from early on ensures your financial security for you and any
of your dependents, regardless of age.

Myth 2 – I don’t need superannuation
insurance if I’m young and healthy

Some people believe that if they are young, healthy, and not
currently facing any health issues, there’s no need for
superannuation insurance or obtaining additional cover. However,
the unexpected can happen to anyone at any age. Superannuation
insurance is not just about protecting against old age; it also
provides coverage in the event of accidents, illnesses, or
disabilities. Having insurance early on ensures that individuals
and their families are protected during their entire working life
and beyond.

Myth 3 – Superannuation insurance is only
about a death benefit

While death benefits are a crucial aspect of superannuation
insurance, it’s not the only coverage provided. Many
superannuation funds offer a range of insurance options, including
Total and Permanent Disability (TPD) cover, critical illness
insurance and Income Protection (IP). TPD cover provides financial
support if an individual becomes totally and permanently disabled
and is unable to work, critical illness insurance will provide
cover to you if you have diagnosed with a critical illness under a
relevant policy, while Income Protection insurance offers a regular
income stream if you, the insured person is temporarily unable to
work due to an illness or an injury. Products are different
depending on what institution you insure yourself with, so it is
important to read the policy carefully and the associated Product
Disclosure Statement (PDS).

Myth 4 – Superannuation insurance is
automatically adequate

Some individuals assume that the default insurance cover
provided by their superannuation fund is automatically sufficient
for their needs. In reality, the default cover may not align with
an individual’s specific circumstances and your associated
financial goals. It’s essential for individuals to review their
superannuation insurance regularly, considering factors such as
changes in your income, your dependents, and any lifestyle changes.
Adjusting the coverage to better suit your personal circumstances
ensures that the insurance remains relevant and adequate if you
need it.

Myth 5 – Superannuation insurance payouts are
taxed heavily

There is a common misconception that superannuation insurance
payouts are subject to heavy taxation. In Australia, superannuation
insurance benefits are generally tax-free when paid to a dependent
beneficiary. The tax treatment may vary if the benefit is paid to a
non-dependent, but it is essential to understand that the tax
implications are often more favourable compared to other forms of
income.

Myth 6 – I have multiple accounts that are not
consolidated and can only claim from one of them

You can usually claim the lump sum total and permanent
disability insurance held with all superannuation funds you were a
member at the time of your disablement, the same goes for
entitlements to your fund’s death benefit payment. However, it
is important to note that it always depends on the wording of the
policy fine print, and it may be worth considering the timing, or
order of any claims you might make, to ensure that you maximise
your entitlements.

The above myths are just a few of the misconceptions individuals
may have regarding superannuation insurance, so if you are ever in
doubt about your policy, whether you have a claim or need any
advice, it’s important to speak to an experienced lawyer to
assist you.

Superannuation insurance is a vital component of financial
planning in Australia, providing individuals with peace of mind and
financial security for the future. Debunking common myths
surrounding superannuation insurance is crucial to ensuring you
have the policy right for you and your needs.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.