The premiums deducted from your superannuation balance to pay for insurance cover held within your super fund. These costs reduce your retirement savings but are paid from pre-tax contributions.
Cost of insurance in super is the premium deducted from your super balance to fund life, TPD, or income protection cover held inside the fund. It is paid from concessional contributions taxed at 15%, not from after-tax salary.
The tax-effective premium funding is offset by the compounding cost of those premiums to your retirement balance over decades.
| Component | Typical size | |---|---| | Base risk premium | Set by insurer based on age, gender, occupation, sum insured | | Stamp duty | Around 5-10%, varies by state | | Fund administration loading | Some funds add a small management margin |
For someone on a 37% marginal rate, the headline cost difference is:
| Premium amount | Funded via super (15% contribution tax) | Funded via salary (37% + Medicare) | |---|---|---| | $1,000 net premium | Requires $1,176 of concessional contributions | Requires roughly $1,587 of gross salary |
In other words, super-funded premiums save around 25-30% in tax compared to paying from after-tax pay for someone on the same marginal rate.
Premiums paid from super are no longer earning compound returns. A $1,000 annual premium over 30 years at 7% average return represents roughly $94,500 in foregone retirement savings.
For older members, premiums typically rise sharply:
Under the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, default insurance is cancelled where:
The reforms aim to stop multiple low-balance accounts being eroded by duplicate insurance premiums. Members can always opt back in by completing a fund election.
Emma, 35, has $85,000 in super with default cover costing $650 annually. Over 30 years to retirement, assuming 6% returns, these premiums compound to approximately $51,000 in lost retirement savings, but provide continuous death and TPD protection worth $150,000.
Michael, 55, sees his super insurance costs increase from $1,200 to $2,800 annually as he ages. Over 10 years to retirement, this $22,000 in premiums (increasing annually) could have grown to approximately $31,000, but his cover remains at $250,000.
Sarah's $120,000 super balance has $1,100 annual insurance costs. She switches to retail insurance for $1,800 annually. While her out-of-pocket costs increase, her super balance now grows by an additional $1,100 yearly, worth approximately $37,000 more at retirement in 25 years.
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