1 in 4 Australians are in the dark about the insurance in their super: Pulse Spotlight

Summary

Super Consumers Australia’s Pulse survey has found that default insurance cover in super has left many Australians paying for insurance they don’t know about or don’t understand.

The survey found that:

• 27% of people are either unsure if they have insurance (19%), or dont know what their policies are (9%).
• Over half of 25-29 year olds don’t know that default insurance normally starts at age 25, even though they have recently passed this age threshold. 

In 2023-24, Australians paid a total of $6.785 billion dollars for group insurance within super. Super funds and insurers typically offer these insurance policies by default, and they may not be personalised to an individual’s needs. Despite this huge cost, insurance in super is a mystery to many super fund members.  

Super Consumers is calling for a Productivity Commission review of insurance in super, to ensure it is living up to the needs of Australians.

1 in 4 Australians don’t know what insurance they have in super 

The following factors contributed to people’s knowledge of the insurance in their super:

• Choice of fund: People in a fund they chose themselves were more likely to say they knew whether they had insurance than people in a default fund – 79% versus 71%.
• Young adulthood: 45% of 18-24 year olds either don’t know if they have insurance or what insurance they have. Typically people in this age group do not have default insurance, as it is only ‘switched on’ by their fund after they turn 25 years old.
• Older people: More people aged over 55 say that they know about the insurance in their super – 84% of 55-64 year olds and and 88% of 65+ year olds say that they know what they do or don’t have, compared with 73% of respondents overall. 
• Gender: 31% of women say they do not know what insurance they have, versus 24% of men.

The survey found that people’s reported knowledge of the insurance in their super didn’t shift dramatically between the ages of 25 and 54. 28% of 25-34 year olds don’t know what insurance they have, versus 24% of 45-54 year olds. This is a relatively small difference, considering the significant changes in most people’s lives, finances and potential need for financial protection over this period. For example, a 25 year old without children or a mortgage might understandably be less focussed on their insurance. By contrast you would expect to see a 50 year old who is more likely to have both a mortgage and children to be more focussed on insurance needs. Yet these two cohorts have similarly low levels of knowledge about their insurance in super.

Table 1 summarises member understanding of what insurance they have by cohort. 

Table 1 Insurance statistics – selected cohorts 

Question: What insurance do you have included with your super? Select all that apply n = 1217

Half of people who just reached the default insurance ‘switch on’ age don’t know this

The Pulse survey asked people whether the following statement is True or False the correct answer is True):

If you are over 25 years old, super funds will normally automatically enrol you to their default insurance. It is up to you to opt-out if you don’t want it. 

Knowledge of this fact is particularly relevant for people around the age of 25. Yet, more than half of 25-29 year-olds (53%) either didn’t know (39%) or got the answer wrong (15%), even though it is likely they had been defaulted into insurance cover via their super in the last few years. 

Around three-quarters of 18-24 year olds (74%) either didn’t know if it was true (57%), or got the answer wrong (17%).

The point at which people are defaulted into insurance is the time when super funds should do more to engage people in making decisions about their insurance cover. It is clearly in members’ best financial interests to be prompted to genuinely consider whether they want or need insurance and, if so, the type and level of cover. If not, they risk inadvertently paying a significant amount for cover in their working life that may not align with their needs. 

From a member’s point of view, insurance in super is a confusing mix of ‘we-know-best’ and individual responsibility. Each super fund has a one-size-fits-all insurance policy, but these policies differ radically between funds and may be designed for a cohort that doesn’t match an individual’s needs. This means people are exposed to significant risks if they aren’t across the intricacies of the individual policy they are paying for – and millions of people aren’t across these details.

And default insurance in super is typically costing members several hundred dollars a year. Some cover is even more expensive, for example, for people in more risky occupations. With Cbus, a 40 year old in a ‘dangerous’ occupation will pay $314 a year for life cover and $484 for TPD, a total of $798 p.a..

In 2018, the Productivity Commission found that group insurance was causing ‘excessive’ super balance erosion. According to the Commission’s modelling, a blue-collar worker receiving a low income and paying for death, total and permanent disability (TPD) and income protection (IP) insurance would have $85,000 (14%) less to spend at retirement than if they had no insurance in a typical example. In an extreme example, the worker’s retirement income could be reduced by $125,000 (28%).⁷

Figure 4. True/False Question: If you are over 25 years old, super funds will normally automatically enrol you to their default insurance. (correct answer is True)  Select all that apply 

Pulse knowledge question asked to 18-29 year-olds. n = 281.

What should be done?

The findings of our Pulse survey reinforce Super Consumers’ ongoing concerns about insurance in super, including poor value for older Australians, and the devastating impact of claims delays on people’s finances, health and relationships. The complexity of insurance in super, and the lack of consumer knowledge, means many people are in the dark about whether or not they are protected.

The risk of balance erosion makes it important that super funds do more to effectively help members understand what insurance products they are paying for. Funds also need to come clean on how they design default insurance products for their members, and how each fund tries to ensure that their default insurance is right for their increasingly large and diverse memberships. 

Given how clear the problems are, and the fact that super funds have not taken strong steps to improve the transparency and suitability of their insurance, Super Consumers is calling for a long-overdue Productivity Commission review of insurance in super. 

An in-depth review should look at:

• Whether providing insurance in super is the most appropriate and equitable method for meeting community expectations for the support of people (and their families) when they can no longer work due to death, disability, injury or illness.
• Detailed analysis of the aggregate net public benefits and costs associated with insurance in super, such as costs saved through the welfare system.
• Detailed analysis of the gaps and overlaps between insurance in super and other schemes and payments in Australia to support people in the event of death, disability, injury or illness, such as workers compensation, Centrelink payments, the NDIS and insurance outside super.
• Alternative models, including no-fault compensation schemes such as the New Zealand Accident Compensation Commission.
• If insurance in super is to be retained, changes to policy settings that are required to enhance the value of insurance in super, including standardised terms and greater consistency in default insurance cover, and any additional consumer protections.

About the survey

This research note was part of Super Consumers’ Pulse 2024 survey. The sample was made up of 1,526 respondents aged between 18 and 75 years old who completed the survey between 14 May 2024 and 24 May 2024. The survey respondents were sampled to be representative of the Australian population on the basis of age, gender, and location. Please refer to the Pulse 2024 summary report and result tables for more information.

This research was supported by a philanthropic grant from Ecstra Foundation. Ecstra is committed to building the financial wellbeing of Australians within a fair financial system.