Insurance - more information
Insurance explained
Most super funds use their marketing power to buy insurance at rates that can often be cheaper than if you purchased the same insurance directly at regular rates.
Super funds do this by grouping their members together into combined insurance policies. This lets them buy insurance at wholesale rates. These wholesale rates are sometimes called "group insurance" because a group of employees or super fund members are insured under a single insurance policy held in the name of the super fund's trustees rather than individually with separate policies for each person.
The group insurance rates you will pay for your insurance through your super fund are usually based solely upon your age or other overall characteristics of the group. Some super funds though also split members into higher risk or lower risk occupational groups, eg, manual workers compared to executive managers. And some funds, often retail super funds like master trusts, will even split their members into many risk groupings so members can find an insurance rate that closely matches their risk profiles.
Binding beneficiaries
One thing to remember when buying insurance through your super fund is that because the trustees hold the policy rather than you, if you or your estate ever has to make a claim the trustees are obliged to make a judgement that the person making the claim is legimate. But to protect members against the very remote chance of these complications arising, some super funds are now introducing binding beneficiary nominations that lock them into paying a member's preferred beneficiary or dependant.
Types of insurance
Super funds offer 3 main types of insurance offered by super funds:
| 1. |
Death only |
Pays your nominated beneficiary a set amount upon your death. |
| 2. |
Death and total and permanent disability (Death/TPD) |
Includes death only insurance, but you are also able to claim against your insurance if you are catastrophically injured or can not work again because of a disability. If you make a TPD claim though, upon your death your insurance cover reduces to the balance of the overall sum insured not already paid. |
| 3. |
Income protection (IP) |
Sometimes called salary continuance insurance, sickness and accident insurance, or temporary disability insurance. If you can not work because of injury or temporary disability you can claim part of your lost salary while you are recovering. |
How SelectingSuper compares insurance premium rates
Each of the 3 main types of insurance is so different that when comparing insurance policies across super funds you must first understand which type of insurance you are comparing. And understanding insurance is not just about price; for TPD and income protection insurance it also important to check the policy conditions as some funds can have subtlely different definitions of what they call a disability.
The next question is how do you compare prices. There are 2 main methods super fund use to describe how they calculate their insurance premium rates – unit prices or ratios.
The unit price method is where a member buys pre-defined amounts of insurance cover for fixed amounts of premium, eg $100,000 cover (sum insured) for $1.00 per week.
The ratio method is where a member can buy whatever amount of insurance they like and the premium is derived by a pre-defined ratio of the amount of cover. Eg, for every $1,000 in insurance cover the member pays $0.52 pa.
The unit price method is most widely used by not for profit super funds, where 70% use this approach. The ratio method is most widely favoured by master trusts where 90% use this approach. Similar differences are also found regarding how funds describe their premiums in that while 68% of industry funds describe their premiums in "per week" terms, 75% of master trusts describe their premiums in "annual" terms.
SelectingSuper uses the unit price method in its comparisons tables for the simple reason that it describes buying power per dollar in terms that our anecdotal evidence from employers and consumers suggests is meaningful. However, no method is superior to another and it is entirely up to each fund to choose their preferred approach.
Automatic Acceptance Limits (AALs)
Super funds usually have pre-set maximums for how much insurance members can buy without needing to undergo medical assessment. These maximum amounts are referred to as Automatic Acceptance Limits (AALs). Importantly, the premium rates for cover above the AAL is nearly always the same as the below-AAL cover. | 
