Life insurance is automatically added to your super if you're over 25 and have $6,000 or more in your account. The payments automatically come out of your super unless you go online and cancel – something I did a couple of years ago.
In other words, the life insurance inside your super is very easy to forget about. But it's not always very good value. For example, most policies expire when you turn 65 and will class you as a blue collar worker unless you tell them otherwise.
How does life insurance through super work?
Life insurance held within superannuation can help with a payout for your family if you die, get severely ill or become permanently disabled and can no longer work.
Insurance premiums are paid out of the money in your super account, meaning you don't have to pay from your take-home earnings.
Life insurance through super: Pros and cons
Pros
Premiums can be cheaper
Convenience – payments come out of your super
Fewer health checks
Less paperwork
Tax perks may apply
Cons
Reduces your retirement balance
Cover might be limited with less flexibility
If you change funds, your cover may end
Your nominated beneficiary might not be guaranteed
Payouts can be delayed
Top tip
If you're a white collar collar worker, it's likely that you're paying more than you need to. Most super funds will default classify you as a blue collar worker, the most expensive group to insure.
Finder survey: Do Australians know how much life insurance cover their super includes?
Response
Yes
56.7%
No
43.3%
Source: Finder survey by Pure Profile of 1110 Australians, December 2023
6 key differences between direct life insurance and superannuation insurance
Direct life insurance
Superannuation insurance
How do you buy a policy?
Buy from an insurer or via a broker
Cover is often, but not always, included automatically in a super account
About the application
Apply online or over the phone. You may need to do a medical as part of the underwriting process
Guaranteed acceptance on shared terms others get through group life cover
How much does it pay out?
You have more flexibility to choose how much cover you want, including higher benefits
Your overall cover amount may be comparatively low
How do premium payments work?
Payments come out of your bank account, and sign-up offers and discounts may be available
Payments are taken directly from your super contributions, and funds can get beneficial tax relief on premiums
How to amend or cancel a policy
Contact the life insurer directly and follow steps to cancel
Edit or cancel your cover in your super account online or in-app
How do you choose your beneficiaries?
You nominate your beneficiaries with the insurer when you take out a policy
You'll have to get in contact with your super fund to add or edit your preferred beneficiary
Life insurance inside your super
I cancelled the life insurance inside my super when I was around 26. It made sense for me because I hadn't been paying premiums for long and I didn't want insurance eating into my retirement savings. Plus, like most policies, it was set to expire when I turn 65. I got a standard life insurance policy with a 99 year-old expiry age instead.
Have made a contribution into your account within the last 16 months
Insurance is typically added automatically once you meet these eligibility requirements.
Advantages of life insurance through superannuation
It's usually cheaper. A super fund usually buys life insurance in bulk for large groups of people, which means that premiums are often discounted. This form of pricing means you can usually expect to pay less for cover held inside superannuation.
It's convenient. This type of cover offers guaranteed acceptance, and premiums are taken directly from your super balance. Not having a standalone policy can cut down on life admin, as you'll have less paperwork than someone who holds a super account and a separate life insurance policy.
Fewer health checks. Because the insurance is usually taken out as a group policy through the super fund, individual medical checks aren't usually required. This can be helpful if you work in a high-risk job or have any health conditions as you might have difficulty getting cover elsewhere.
You can increase your cover. If you want to get more than the standard amount of life insurance cover that your super fund provides then you can generally apply for more cover. However, you will most likely have to undergo a medical exam or questionnaire and your premiums will increase.
Disadvantages of life insurance through superannuation
Cover can be limited. Guaranteed acceptance means you will be given an automatic level of cover, rather than one that's specific to your circumstances. The standard benefit amount is usually between $100,000 and $200,000. That may seem like a lot, but it's generally recommended that your life insurance is around 5 to 10 times your annual salary.
Less flexibility. You won't have the freedom to choose a policy that's tailored to your life's needs. For example, life insurance gives you the choice to pay stepped premiums or level premiums. What's more, cover through super usually ends when you reach a certain age (typically 65 or 70).
If you change funds, your cover might end. It's common for us to change jobs these days, and with that we often change super funds. But if you do this, there's a chance your cover will cease. That's because super funds must cancel insurance on inactive accounts after 16 continuous months.
The payout might be delayed. With life insurance through super, your superannuation fund receives the payout before your beneficiaries do. The superannuation trustee then has to decide whether the condition of release has been met and decide who the correct beneficiary is (if you have failed to nominate one) which can take some time.
Important note about TPD insurance held in super
According to the Australian Securities and Investments Commission figures, around 9 million Australians hold TPD cover and 86% do so through their superannuation fund. But many won't be aware that super funds can only offer "Any Occupation" TPD insurance.
To make a successful claim with Any Occupation cover, you'll need to be disabled to the point that you can't work in any role suited to your education or work experience. "Own Occupation" cover can be claimed if you're unable to work again in the job you did before your disability.
Financial adviser Brenton Tong, who is group CEO of Financial Spectrum, told Finder: "If you want full coverage for a broader range of events, you need to take out a fully underwritten TPD policy."
💡Quick tip: If you hold insurance within your super, ask the fund for a list of excluded occupations.
How to check if you have insurance through super
To find out if you have life insurance inside your super, you can:
Call your super fund and enquire with them directly
Log in to your super account online or via the fund's app
Check your super fund's annual statement or product disclosure statement (PDS)
This should give you access to the type of insurance you have, as well as how much cover you have and how much you're paying for it.
Why you can trust Finder's life insurance experts
We're free
You pay the same as buying directly from the life insurer. Better still, we regularly run exclusive deals that you won't find on any other site – plus, our tables make it easy to compare policies.
We're experts
Our team of life insurance experts have researched and rated dozens of policies as part of our Finder Awards and published 250+ guides to make it easier for you to compare.
We're independent
Unlike other comparison sites, we're not owned by an insurer. That means our opinions are our own and we work with lots of life insurance brands, making it easier for you to find a good deal.
We're here to help
Since 2016, we've helped 270,000+ people find life insurance by explaining your cover options, simply and clearly. We'll never ask for your number or email. We're here to help you make a decision.
Common questions about superannuation and life insurance
There are a number of benefits to having insurance in your super. Premiums can be cheaper than with standalone life insurance. As well as lowering the cost of your insurance, you can get cover automatically and payments come straight out of your super. You can get peace of mind with up to 3 main covers: death insurance, TPD and income protection.
However, it's important to understand you are likely to have far less favourable terms compared with standalone cover.
Generally, no. The Australian Taxation Office (ATO) states that premiums on insurance policies taken through super accounts are not personally tax deductible. This is because the cost of the insurance comes from your superannuation balance, rather than your income.
However, you could choose to "salary sacrifice" into your super, giving you more to help meet the cost of your premiums. Whether or not this is the right option for you is something you may want to talk through with a financial adviser.
No, life insurance inside super is not compulsory. You can cancel your cover at any time.
There are 3 things to compare: How much the insurance costs, the amount of cover offered and any exclusions that may apply to you.
Also, check any other super accounts you hold to make sure you avoid paying more than once for your insurance.
No. Since April 2020, people under the age of 25 no longer automatically receive life insurance when they open a super account, unless they're working in a high-risk job. Policies will also be cancelled if they have balances with less than $6,000 in them or haven't received contributions for at least 16 months.
Generally, the insurer and super fund will need to receive any relevant paperwork (such as a death certificate and a will). If there's a valid and binding beneficiary nomination, any benefits will be paid to the person nominated.
If a claim gets turned down by the insurer, it may go to the superannuation trustee for a further review. You could reach out to a lawyer if you'd like your rejected claim to be investigated.
It's tricky to put a number on this. It could start from just a few dollars per month for cover. Premiums vary depending on a range of factors, including whether your insurance is automatically linked to your super account on a default basis, or you opt to make voluntary cover contributions.
Super funds don't offer new trauma insurance policies, but if your super fund offered trauma cover before July 2014, you may still have this insurance. Get in touch with your super fund to find out.
Trauma insurance offers a lump sum if you're diagnosed with a severe illness that's covered in your insurance policy terms. It can be taken out with life insurance or as a standalone policy.
It depends. If you can, you'll often need to answer health and lifestyle questions in order to increase your cover. The reason life insurance inside super is generally cheaper than standalone policies is that it's essentially a one-size-fits-all.
Life insurance through superannuation can be a tricky area to navigate. Speak to a financial adviser if you want extra support.
To cancel your cover, start by calling your super fund or log into your super account. Follow any necessary steps and keep in mind that you won't be insured for that cover from the date your cancellation is accepted.
James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, WIN News, Insurance News, 7NEWS and The Guardian. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146).
Our handy guide to self-managed super fund life insurance explains unique features, pros and cons, tax rules and FAQs.
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