The primary purpose of superannuation is to provide a long-term savings plan for retirement.
But many policies and funds include additional benefits to the policy holder, including different forms of insurance. In many instances, people with superannuation funds have no idea about these built-in benefits.
One common benefit in many superannuation funds is a form of life insurance, also called a ‘death benefit’.
When making a decision about an appropriate superannuation fund, it is wise to consider whether or not benefits like life insurance are included, and the total amount you may be insured for. This decision about the right superannuation policy for you could provide significant financial relief to your loves ones if you prematurely pass away due to accident or illness. If you die due to accident or illness, your death does not have to be work related to make a claim on your superannuation death benefit.
The individual superannuation policy dictates the intricacies of the specific death benefit, including the amount of the benefit and whether any exclusions exist; for example, some policies will not pay out the death benefit amount in the case of suicide or for pre-existing conditions.
Some policies have very extensive and generous death benefits, ranging in the hundreds of thousands of dollars. Other benefits might only provide a nominal benefit or even no benefit at all. Some funds have life insurance to a set amount automatically when you join and some require you to “opt-in” or “opt-out”. With many funds, you can also buy a higher amount of life insurance.
The amount of the benefit is often also impacted by the age of the policy-holder at the time of their death. For example, in situations where age is a relevant factor, one might expect that the amount payable if someone dies at the age of 25 will be vastly greater than the benefit paid if someone dies at the age of 55.
"This might seem unfair and a form of age discrimination"
This might seem unfair and a form of age discrimination, but it is based on the fact that someone dying at the age of 25 has likely lost several more decades of potential life compared with someone who dies at the age of 55. Some funds however have a fixed benefit which is not impacted by the age of the policy holder upon death.
In addition, many policies have an expiration date regarding payment of any death benefit. For example, a policy might stipulate that no death benefit is payable after the age of 60.
Checking if your superannuation policy includes life insurance/death benefits is important for you and your family. When someone passes away, the difficulty and hardship associated with that death is often worsened if the deceased was the primary source of income for their children, spouse, dependents, etc.
Death benefits can help ease the financial pressures that may exist after a loved one passes, including assistance with paying the mortgage, school fees, car repayments, etc.
The recipient of the death benefit is not always well-known. The death benefit may not form part of the deceased estate (part of your Will) like other assets. The policy holder should provide a written ‘binding nomination’ which directs the superannuation Trustee to pay the death benefit to a specific individual.
In some instances, the binding nomination could direct the benefit to be paid to the estate, rather than an individual. This can be tricky, and you should seek advice if you are considering this option. Generally, a dependent, spouse, de-facto (including same-sex partner) and children are able to claim a death benefit.
"In some situations, death benefits may even be payable if someone is still alive."
In some situations, death benefits may even be payable if someone is still alive. This might sound highly unusual, but this situation is generally reserved where a policy-holder is suffering from a terminal illness and a doctor has only given them a short time to live. Paying out the death benefit early will allow the policy-holder to get their financial affairs in order before they pass away.
If a loved one passes away and you wish to inquire about their potential death benefit through their superannuation fund(s), you should seek legal advice immediately.