Study finds group insurance can significantly reduce premiums

According to a Rainmaker Information study, conducted in collaboration with Plan For Life, super fund members can save big compared with buying similar life insurance directly online.

“The study confirmed that super fund group insurance provides a cost-effective option for fund members across all age groups and coverage needs,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.

Rainmaker said the study looked at the average premium value of MySuper automatic standard cover default insurance, comparing the cost of buying an age-based sum insured through a super fund versus direct purchase.

It also evaluated the standardised price of insurance cover for death and total and permanent disability (TPD) cover for three standardised sum insured limits, again comparing the average price of super fund purchased voluntary top-up cover versus direct purchase.

The study found that there was a 44 per cent price advantage of default super fund group insurance for death and TPD cover for a 40-year-old.

The price savings were heavily impacted by age, with the annual savings when buying this insurance through a super fund found to range from $150 for a 30-year-old up to $680 for a 60-year-old. Rainmaker said this was due to annual premiums for group insurance decreasing for super fund members as they aged, while the cost of directly purchased life insurance increased significantly.

Giving the example of a 25-year-old super fund member with a sum insured of $100,000, the study found they would pay an annual premium of $118, while purchasing equivalent life insurance directly would cost $218, leading to a saving of $100, or 46 per cent.

Rainmaker added that a 50-year-old would pay premiums as high as $840 for direct insurance, while super fund group insurance would cost an average of $600. While this represents a larger saving in dollar terms at $240, saving it a smaller 30 per cent advantage.

“For a larger sum insured of $500,000, the difference in premiums gets higher in dollar terms,” Mr Dunnin said.

A 25-year-old with that level of cover would pay 37 per cent more in direct insurance annual premiums. The difference in annual premiums hit a low point for a 50-year-old at 8 per cent but the gap climbed back up to 22 per cent for a 60-year-old.

The study only looked at group and direct cover, it did not cover advised insurance clients.