Default insurance coverage in industry super funds is very common, with many Australians using this as their only form of life insurance.
What may not be commonly known however, is that this type of insurance often defaults to a blue-collar work rating when issued to members.
Blue-collar work (generally manual labour) is considered to be a riskier occupation than white-collar work (primarily in an office environment). This extra risk will naturally show up in higher insurance premiums. The higher the risk of claim, generally the higher the premium will be to insure yourself against death or major disability.
The work rating determines the premiums for default insurance cover. Blue collar will likely cost more money than white collar. This means that if you have insurance with your super fund, you could be paying more premiums than is necessary. This may result in a smaller balance available to you in retirement.
Some super funds may have an additional work rating type, called Professional. This can further reduce premiums if you belong to the list of occupations considered professional in your particular fund.
How much more does it cost?
Below is a chart displaying the difference in premiums between blue & white collar insurance definitions for three of Australia’s biggest industry super funds.
Please note that the comparison of premiums between funds is not relevant here as their default offerings each have differing levels of cover and definitions. Pay more attention to the gulf between the work ratings of each fund.
The levels of cover used to compare are based on the default offerings for a 30-year-old male earning around $65,000 per annum. This can be seen below:
*You will note the very minor difference for Australian Retirement Trust (ART). ART differs in that for their default Death & TPD insurance, a white-collar worker can access 50% more cover for the same premium, rather than a reduced premium like in CBUS or Australian Super. The table above displays the default amount for a blue-collar worker. A white-collar worker would have their Death & TPD sums insured increased by 50% in ART. Their income protection premium changes based on the work rating, however.
How do I change it?
Each super fund will have their own process of changing your work rating. For many it is as simple as downloading a form from their website and submitting it via email.
Whilst changing the work rating is incredibly beneficial for white-collar workers paying blue-collar rates, it must be said that this change should not be for everyone.
When applying to change your work rating, you must ensure that you do not intentionally try to mislead your super fund in order to take advantage of the lower premiums. If it is found that you misrepresented your current occupation in order to benefit from the lower costs, you may be denied a claim under your insurance.
Is default cover enough for me?
If you do have default cover in your superannuation, and it is your only form of insurance cover it may be worth reviewing its suitability.
Default cover is often an age-based benefit, which means that it will increase or decrease as you age. For example, the largest amount of Death cover in Australian Super is found at age 34 ($183,000) from where it then decreases to be only $80,000 at age 50.
In Australian Super’s own words: “Basic cover is age based and designed to provide a minimum amount of cover for changing needs as you get older”.
Default cover does not accurately account for the insurance needs of an individual. Most people will likely need tailored cover in order to adequately protect themselves from disability or untimely death.
Tailored cover is offered by most super funds as well as retail insurance companies, insurance brokers and financial advisers. This can sometimes be expensive, but there are ways to mitigate these costs.
For example, some financial advisers may offer insurance advice with no commissions being payable. This will often reduce the premium payable by at least 30%.
You can read more about this practice here.
For a no-obligation initial consultation with an adviser about your insurance needs, schedule a meeting here.
Citations
Quoted premiums and cover levels are accurate as of 22/08/2024. The source used for each super fund is linked below:
