Insurance in super accounts eroding nest eggs, working group warns

A report out today says some Australians may have too much insurance cover unnecessarily tied up in multiple superannuation accounts.

The Insurance in Superannuation Working Group, which is backed by both industry and retail funds, says an overload of insurance within super risks a "rapid erosion" of some retirement nest eggs.

The working group's chairman Jim Minto told The World Today that while insurance within in super is valuable for some, younger Australians in particular are paying for insurance they don't need or can’t afford.

"It's great that it's there but younger people in society have more than one superannuation account and so you can have life insurance in each account when you don't need that much life insurance," Mr Minto said.

"If you've got too many policies, it will erode the balance too much. It's got to be enough (insurance) but not too much."

Mr Minto, a veteran of the life insurance industry, urges people with multiple superannuation accounts to consolidate polices to avoid over insurance.

But he concedes some Australians might not be aware the insurance cover even exists.

"A lot of people aren't aware but the awareness is increasing and we're seeing more people acting on the insurance and claiming on it," Mr Minto said.

"In some cases if you've got a large mortgage for example it may be good to have more insurance but we want that to be a conscious decision."

The working group today released the first in a series of discussion papers aimed to extending the Life Insurance Code of Practice to superannuation trustees.

As part of the review, the ISWG is seeking submissions on how to balance the need for retirement savings with default benefits such as life insurance and income protection insurance.

"People can have multiple income protections in different super accounts but you can only really claim on one so you're wasting money. We need to fix it," Mr Minto said.

The study comes as young Australians rein in household budgets to save a deposit to enter hot housing markets in Sydney, Melbourne and Brisbane.

The review also comes amid a regulatory crackdown on superannuation and insurance products with evidence of claims being delayed or denied by major banks and insurers.

The working group is backed by prominent lobby groups across the superannuation section including the Financial Services Council, the Association of Superannuation Funds of Australia and Industry Super Australia.