Big rise in super funds' life insurance premiums
Fund members have received, or are about to receive, notifications from their funds of increases in the cost of insurance premiums of up to 50 per cent.
From June 29, the two million members of the AustralianSuper fund will face increased premiums for death and for total and permanent disability cover by almost 40 per cent and by about 25 per cent for income protection insurance.
Super funds of all stripes - whether not-for-profits, "retail" funds run by banks or corporate funds - are increasing their insurance premiums.
The insurance is in most cases a default option, unless you actively choose to opt out. The money is deducted automatically from the member's account balance by the fund. The funds note the insurance on their regular statements but in many cases people are unlikely to be aware they have the insurance.
Super funds have contracts with insurers that typically run for three years and some of the biggest funds are coming up for renewal at the same time. More funds are expected to announce rises this year as they renegotiate prices with their insurers.
Insurers are putting up their premiums because fund members are making more claims as the economy remains weak and unemployment edges up, said Jim Minto, the managing director of insurer TAL Australia, which is AustralianSuper's biggest insurer.
Mr Minto said there were significant premium price falls towards the end of the financial crisis as insurers expected claims would start to fall as the economy improves. He said there was a strong relationship between insurance claims and higher unemployment.
Though prices are rising, the funds are providing more cover for each dollar of premium. Most funds provide a certain level of "default" cover, where the member receives the cover without choosing to have it.
The amount of default cover is usually based on the member's age and members can usually elect to increase or decrease the cover. Taking out insurance through super is much cheaper than obtaining the same cover outside of super.
Warren Chant, the co-founder of researcher Chant West, said while the price rises were high, it was still good value. He said a 40-year-old with AustralianSuper pays about $2 a week for $150,000 worth of death and disability cover. And after the 40 per cent price rise, the 40-year-old would still be paying only about $2.80 a week.
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Frequently Asked Questions about this Article…
Insurers are raising premiums because fund members are making more claims as the economy weakens and unemployment edges up, according to TAL Australia’s managing director Jim Minto. Many super funds are also renegotiating three-year contracts with insurers at the same time, which is driving further price increases.
Price rises notified to members have been as high as 50% in some funds. For example, AustralianSuper is increasing death and total & permanent disability (TPD) premiums by almost 40% and income protection premiums by about 25%, effective from June 29.
Almost every working Australian with default insurance inside their superannuation is being affected. Super funds of all types—industry not-for-profits, bank-run retail funds and corporate funds—are increasing premiums, and large funds with millions of members like AustralianSuper are included.
Yes. In most cases the life and income protection insurance provided through super is a default option unless you actively opt out. Premiums are deducted automatically from your super account balance, and funds usually note the insurance on regular statements—though many members may not realize they have it.
Funds say they are providing more cover for each dollar of premium. Most funds offer an age-based level of default cover, and members can usually elect to increase or decrease that cover.
Yes. The article notes that taking out insurance through super is generally much cheaper than obtaining the same level of cover outside of super.
Researcher Chant West’s co‑founder Warren Chant said a 40-year-old with AustralianSuper pays about $2 a week for $150,000 of death and disability cover. After a 40% price rise, that cost would be roughly $2.80 a week.
Yes. Many super funds have contracts with insurers that typically run for three years, and a number of the biggest funds are up for renewal around the same time. More funds are expected to announce premium rises as they renegotiate prices with insurers.
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