Cost of Insurance (in Super)

When you hold insurance through superannuation, premiums are automatically deducted from your super balance, typically monthly or annually depending on your fund's processes. This is referred to as the 'cost of insurance' and directly reduces the amount you'll have at retirement. The cost is tax-effective because it's paid from superannuation contributions that have been taxed at 15% (the concessional contribution tax rate), rather than from your after-tax income. For someone on a 37% marginal tax rate, paying $1,000 in insurance premiums from super means the true cost is effectively $1,000, whereas paying from salary would require earning approximately $1,587 to have $1,000 after tax to pay the premium. However, the long-term impact on retirement savings can be significant due to compound growth. A $1,000 annual premium over 30 years at 7% average returns represents approximately $94,500 in lost retirement savings. This opportunity cost must be weighed against the protection provided. Superannuation funds must disclose insurance costs in annual statements and member communications. Fees typically include the base premium, stamp duty (around 10% in most states), and any fund administration fees for managing the insurance. Members can usually adjust coverage levels or opt out entirely, though this affects protection. Recent Protecting Your Super reforms mean inactive accounts and low balances may have insurance automatically cancelled to preserve retirement savings.