Default life cover falls short

Many do not realise that as they age the level of "default" death and permanent disability insurance cover usually decreases.

Most funds provide at least a small level of "default" insurance protection, where the fund member receives the cover without paying for it directly. The costs are shared, collectively, by all members of the fund.

The range for default insurance cover is between $150,000 and $250,000 until age 35 or 40, with cover dropping to as little as $50,000 by age 50.

The fund will look at the age profiles of its members and match their cover with the financial liabilities of the "average" fund member. For some funds, the reduction starts at age 35 or 40, for example, and reduces on each subsequent birthday.

Generally, industry funds provide members with two or three units of default cover. Each unit will provide, say, $50,000 of death and total and permanent disability cover with automatic acceptance, with no need for a medical examination or other checks.

If a fund member wants more cover, they have to pay directly for it by buying additional units.

As super funds are buying the cover in bulk, the costs for the members are usually much less than if they bought the insurance outside their super fund.

Retail funds also often provide default cover but will have more variety in how it's provided. Sometimes they will have unitised cover like industry funds, but some others will apply a formula based on members' individual circumstances.

While members will see the amount of death and total and permanent disability insurance cover they have on their annual statements, they will not usually be alerted by their fund that their level of default cover has reduced.

When a fund member reaches the age when the cover starts to reduce, they can ask their fund to maintain their existing level of cover, with the fund member paying directly for the extra cover.

For those over 40, a default cover of $50,000 or $100,000 would not make much of a dent in the mortgage, let alone provide for the family if the unthinkable were to happen.