Life insurance should be included as part of the objectives of superannuation given that more than 70% of Australian life insurance policies are held via superannuation funds according to financial services researcher Rice Warner.
However, most people holding these policies are underinsured with median levels of cover only providing around 60% of the basic needs of an average household according to research compiled by Rice Warner.
The research also found that while 73% of life insurance policies – more than 13.5 million separate policies – were held through some form of superannuation fund, with 41% held via industry super funds alone, underinsurance remained high for life, total and permanent disability (TPD) and income protection cover.
Rice Warner found that while median levels of life cover would cover just under two thirds of basic needs for average households, this dropped lower for families with children.
“The research also found that while 73% of life insurance policies…were held through some form of superannuation fund…underinsurance remained high…”
This median level of cover would also provide only 38% of the amount needed to allow family members and dependants to maintain their standard of living after the death of a parent or partner. The level of cover fell under 20% for TPD and income-protection with median cover meeting only 13% of TPD needs and 17% of income-protection needs.
Rice Warner stated while the level of underinsurance was high the presence of life insurance in superannuation fund highlights the critical role they played in providing life insurance cover for a high proportion of employees.
“The degree of underinsurance together with the role of superannuation funds in providing much of the coverage emphasises why the Government should include the provision of insurance in its planned legislation of the primary and subsidiary objectives of superannuation,” Rice Warner stated, adding that the absence of an objective for life insurance in super was a significant omission.
In its submissions to Treasury regarding the objective of super Rice Warner stated that “a subsidiary objective should be added to provide for life insurance to ensure comfortable retirement incomes even if the member cannot work to retirement.”
“Many fund members will be prevented by death or disablement from working through to retirement age. They will not be able to provide for themselves or their families before and after retirement without the supplement of an insurance benefit,” Rice Warner said.
“Additionally, income-protection insurance assists in keeping family finances together and assist households to keep preparing for retirement.”
How Life Insurance is Held: Percentage of Policy Numbers
| Corporate Superannuation Funds | 2 |
| Corporate Standalone Superannuation Funds | 2 |
| Industry Superannuation Funds | 41 |
| Public-sector Superannuation Funds | 10 |
| Employer Master Trusts (Superannuation) | 9 |
| Adviser Superannuation | 9 |
| Adviser Non- Superannuation | 10 |
| Direct | 8 |
Source: Rice Warner
