Big rise in super funds' life insurance premiums
Almost every working Australian is being hit by price rises for the life insurance they receive through their superannuation funds.
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.
More personal finance in today's liftout