Written

For

The

Australian

-

Is

the

insurance

component

you

pay

for

in

your

superannuation

fund

actually

junk?

Is the insurance inside your super fund really "junk"? That's the label Liberal Senator Andrew Bragg has slapped on group life insurance policies bundled into super accounts — and while he's got a point, I think it's more nuanced than that.

Bragg's argument is that many members are stuck paying premiums that are high relative to the payouts they'd receive, and that trustees have, in his words, "conducted themselves appallingly." He's also uncomfortable with the fact that group insurance is an opt-out product, meaning most Australians end up with cover they didn't consciously choose.

There's truth in that. But here's the flip side: most Australians are woefully underinsured. For a 35-year-old with a mortgage, a partner and two kids, life insurance premiums rarely make the cut in the monthly budget. Yet if that person dies or becomes disabled, the financial fallout is catastrophic. Super provides a mechanism to fund cover people otherwise wouldn't buy — and that's genuinely valuable.

My view? Use super to pay for insurance during the years when cash flow is tight and financial risk is highest. Then, once the mortgage is gone and the kids have flown, top up your super with extra contributions to make up for the premiums paid along the way.

A few traps worth flagging. Claims take time — 1.1 months on average for life cover, but 5.6 months for total and permanent disability. Most policies carry a two-year exclusion on pre-existing conditions, and some ban them outright. Fixed-dollar fees can quietly erode small balances. And if you stop contributing for 16 months, your cover gets cancelled by law.

For SMSF trustees, it's actually mandatory to consider each member's insurance needs in the investment strategy — and where cover can't be obtained cheaply due to health issues, keeping a retail or industry fund open alongside is a sensible workaround.

Bragg raises fair questions. But calling all insurance in super "junk" goes too far.