Superannuation Life Insurance

Are you part of a superfund? Then you may already own a life insurance policy.

When superannuation is organised by employers, they are required to include a minimum level of life insurance cover. This is usually at a very competitive rate as cover can be provided under one 'group' policy which enables employers to standardise the cost of cover for all its employees.

There are several pros and cons of keeping an existing policy. While it's convenient use the policy that's included with super, there may one out there that's more suitable to your needs. It's worth reviewing the options that are available to you.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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Video: Should I keep the existing cover I have or shop around?

Reasons why you should (or shouldn't) get cover through a superfund

Superannuation life insurance vs choosing your own cover

Here are the key differences between life insurance inside and outside of super.

CompareInside superOutside super
How are premiums paid?Take from your super contributionDirectly by you
How are benefits paid?First to the trustee, then to beneficiaries after conditions of releaseTo the named beneficiaries or dependents
Is automatically renewed?YesYou typically must inform your insurer
Are there volume discounts available?YesNo
Can my life insurance be tailored?NoYes

6 things to know about super life insurance


1. Why is life insurance automatically included inside super?

A minimum amount of life insurance cover is compulsory inside super to help fund Australia's underinsurance gap. This is to ensure if something serious happens to you, there is some level of protection for you and your family. For some people it's easier to pay for insurance automatically through super, instead of having an additional expense on top of your regular expenses.

2. What types of cover are available?

  • Death cover
  • Total and permanent disability insurance
  • Income protection insurance

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3. How are my premiums paid for?

Premiums are automatically deducted from your superannuation.

4. If I have cover inside my super and a seperate policy will I get paid out for both?

This will usually depend on the two policies and what is stated in each product disclosure statement.

In some cases, you can receive a benefit payment from both policies. Start with the super policy or ask the trustee of your superfund. Then speak to either the adviser you bought your seperate policy from or the insurer directly.


5. Can I apply for a new policy and pay for premiums with my existing super?

Some insurance companies allow you to apply for cover with them but continue to fund the cover from your superannuation by performing a superannuation rollover.

6. Is it worth paying for life insurance with my super if don't have any dependents?

While it might not make sense to pay for a death benefit without any dependents, cover often will include other benefits such as TPD or income protection. It's a good idea to get in touch with your superfund to see what your policy offers. Alternatively, speak to an adviser.

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What's the best superannuation life insurance policy on the market?

The Australian Financial Reviews' annual Blue Ribbon Awards identified the best life insurance policies inside superannuation. Some of the main criteria looked at included lump sum amounts, wide range of features and long expiry age.

The best term and TPD life insurance of 2016

PolicyAwardProduct details
MLC Life Cover with TPD RiderBest policyWide range of features including accidental injury and guaranteed future insurability. Expiry age of 100 with clear pricing for all ages and occupations.
TAL Accelerated ProtectionHighly commendableOption to buy-back your life insurance cover in the event of a TPD claim and premium freeze benefits.
AIA Priority ProtectionHighly commendableUnlimited cover for certain occupational categories and a funeral advancement amount up to $25,000.

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In-depth guide to superannuation cover

How does superannuation life insurance work?

Life insurance policies through a super fund work differently to a standalone policy.

1. Paying for cover

How are my premiums paid for?

Premiums are paid from your super fund. This means a portion of your contributions to your super fund are taken to pay for premiums. Make sure you routinely check the amount of money you have in your super fund so that it doesn’t empty the account over time.

2. Ownership and payouts

Who owns a policy?

If a policy is taken out through a super fund is technically owned by the super fund. The owner may be a named trustee who is able to pay out the benefits to listed beneficiaries.

When is a payout made?

Once certain conditions such as terminal illness or death are met, the funds can then be paid out to listed beneficiaries. Note: Any benefit is first paid out to the super fund before going to beneficiaries.

3. Choosing where the benefit goes

Can I choose where the benefit goes?

  • Yes, you can personally choose a 'beneficiary' who will receive your insurance benefit payment.

Two types of nominations

There are two types of nominations:

  • Binding. In a binding nomination, the trustee of the super fund must pay your benefit to the beneficiary you have nominated. The beneficiaries will be paid the amount in any proportion up to 100%. A binding nomination will expire after 3 years and becoming non-binding unless they are updated by you.
  • Non-binding. A trustee will have the final say on a non-binding nomination and will take the beneficiary and will into account when deciding on a non-binding nomination. The trustee will have the final decision on the proportion of payment. Non-binding beneficiaries can include dependents not listed as binding beneficiaries. Non-binding beneficiaries do not have to be updated or renewed.

How much of my super fees go towards my life insurance?

The cost of life insurance inside a retail superannuation fund will often change based on your age. The older you are the more expensive it gets. The cost is also affected by the way you pay for cover.

Unit based vs fixed

You can often choose between two types of payments unit based cover or fixed cover.

  • Unit based cover: The cost stays the same but your cover decreases as you get older.
  • Fixed cover: Your cover stays the same, but your costs increase with age.
It’s called “unit based cover” because your cover is divided into units and each unit costs a fixed amount per week e.g $3/unit a week. Your age determines:

  • How much cover is included per unit
  • How many default units are included

Default units

Superannuation life insurance will typically offer a “default” number of units. This is how many units of cover are automatically included, depending on your age.. You can then choose to purchase additional units to get more cover.

Unit based example

Your ageCost per unitCover that's included in each unit How many default units you getEnd result (for 4 units of cover)
<25$3 per week$50,0002$12 per week, for $200,000 of cover
25 to 45$3 per week$20,0004$12 per week, for $80,000 of cover
45 to 65$3 per week$10,0004$12 per week, for $40,000 of cover
65+$3 per week$5,0006$12 per week, for $20,000 of cover

You choose how much cover you need, and the cost is determined for you. The amount of cover you have will generally stay the same as you get older, but the cost will increase.

Fixed cover example

AgeCost of coverCost of $100,000 of cover
<25$2 per week, per $10,000 of cover$20 per week
25 to 45$4 per week per $10,000 of cover$40 per week
45 to 65$8 per week per $10,000 of cover$80 per week
65+$15 per week per $10,000 of cover$150 per week

Note: Superannuation life insurance will typically start off as unit based cover, which you can then switch to fixed cover if needed.

What types of superannuation funds offer life insurance?

1. Self-managed super funds

An self managed super fund (SMSF) is a super fund that where investments and life insurance choices are managed by a small group of trustees including yourself. Some key characteristics include:

  • Greater control of investments
  • Higher account keeping costs

2. Managed super funds

This is where your investments are managed by a large fund and life insurance policies are managed by a trustee in a super fund. Managed super funds that include life insurance can typically be:

  • A retail super fund
  • An industry super fund
  • Setup by your life insurer
A super fund can be used to purchase other policy options. Options include:

  • Terminal Illness benefit. This will provide you with a lump sum payment if you are diagnosed with a terminal illness and given up to 12 months to live. The payout will be released from your super fund to your beneficiaries and can be used for medical bills, funeral arrangements or as income.
  • Total permanent disablement insurance. It is possible to take out a TPD insurance policy through your super fund either as a standalone policy or in a combined policy.
  • Income protection. Many life insurance brands will allow you take out income protection insurance policies through a super fund to be used if you cannot work for a period of time.
  • Trauma insurance. Since 2014, it is no longer possible to take out trauma or critical illness insurance through your super fund.

How is life insurance through super taxed?

Life insurance inside super is different to cover outside of super when it comes to tax. Tax rules also will differ according to the specific type of life insurance.

Life insuranceIncome protectionTPD
Inside superPremiumsTax-deductibleTax-deductibleTax-deductible
BenefitsTax free for dependant beneficiariesTaxedTaxed
Outside superPremiumsNot tax-deductibleNot tax-deductibleNot tax-deductible
BenefitsTax-free (no matter who is the beneficiary)Tax-freeTax-free

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Benefits and drawbacks of life insurance through super

While taking out life insurance through super can be an affordable option, you need to make sure that you understand exactly how the features and benefits differ from a standard life insurance policy, and how you can make sure the coverage suits your needs. Of course, there are a number of benefits to getting life insurance through your super fund. These include:

The good

The not so good

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How is life cover through a Self Managed Super Fund Different?

Recent years have seen an increase in popularity of life insurance through Superannuation funds whereby their SMSF trustee becomes the owner of the policy and is responsible for making the premium payments. In the event of a claim, the benefit is not paid to the policyholder but to the fund. The trustee will distribute the benefit payment to the policy beneficiaries.

How does life cover through self managed super funds work?

Self Managed Super Fund Diagram

What are the advantages and disadvantages of SMSF Life Insurance?

  • Cash Flow: As the insurance policy is owned by the SMSF, premium payments will be made with funds that have already been accumulated. This means that employer super contributions can be directed straight towards premium payments. Essentially, the stress of covering your next premium payment is removed.
  • Tax Concessions: A key benefit of taking out life cover through a SMSF is the tax concessions. Members are generally able to claim insurance premiums as a tax deduction of the fund.
  • Limited Range of Cover: Many SMSF Life Cover policies will only provide the bare minimum level of coverage and will not offer the additional benefits available in standalone policies i.e. rehabilitation expense benefit, accommodation benefit etc.
  • Reduction of Retirement Funds: As premium payments are made from the members retirement savings, the funds they have accumulated for their retirement will have greatly reduced. Members can make additional payments to their fund to offset this cost.
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10 useful tips for life insurance and superannuation

  1. Take advantage of cost-effective insurance cover: When you choose to buy life insurance through superannuation, you should get the benefit that comes with group buying. Since your super fund is likely to be purchasing life insurance policies on behalf of a large group of people, insurance companies should offer competitive rates for the same, which help to make the cover more cost effective for you.
  2. Life insurance for Self Managed Super Funds: If you are in charge of a Self Managed Super Fund (SMSF), you need to ensure that buying life insurance through superannuation is a decision that is beneficial for every member of your fund, according to their specific situation. If the decision does not tie in with the investment strategy of the fund, you may have to rethink the decision.
  3. Put in place a binding nomination: A binding nomination ensures that your death benefit is paid to the trustee of your choice. If you do not nominate someone, the trustee will decide who the benefit is paid to.
  4. Tax liability for non-dependant beneficiaries: If the beneficiaries of your life insurance proceeds through super are people other than your spouse, your kids, or financially dependent persons, then they will have to pay tax on the money that they receive through your super fund. This is not so when life insurance is purchased outside super.
  5. Minimum levels of life insurance cover: Even if you have decided not to choose your own super fund, you should be aware that it is mandatory for your employer to contribute into a super fund and that the fund should provide you with a minimum level of life insurance cover. This can benefit those who do not have any other type of life insurance cover.
  6. Added cover for disability: Most super funds offer additional cover for disability when you choose to purchase life insurance through superannuation. If your super fund also works along the same principles, you can benefit from the added cover if you become disabled and cannot continue to work for a while.
  7. Automatic acceptance for life insurance cover: Most super funds offer their members an automatic acceptance for a specific level of life insurance cover. This means you do not have to prove your eligibility for the cover, nor do you have to undergo medical examinations for the same. This can be especially useful for people who have a difficult time getting insurance outside of super.
  8. No automatic acceptance for your own super fund: You can take advantage of automatic acceptance by opting to pay for life insurance through superannuation. However, you need to be aware that if you are choosing your own super fund, you may not be eligible for this benefit. This benefit is usually available to those people who opt to become part of a super fund that their employer has a special arrangement with.
  9. Added cover for income protection: Another advantage of purchasing life insurance through superannuation is that you can choose income protection as an ancillary cover within your core life insurance policy. This helps you to protect yourself and your loved ones from a loss of income arising from serious illnesses and disabilities.
  10. Fulfilling the conditions of release: This is a vital consideration if you are thinking of buying life insurance through superannuation. You should know that every super fund has certain conditions of release for benefit payouts. Only if those conditions of release are satisfied will your beneficiaries be eligible to receive any money from your super account. Therefore, if there is any ambiguity or doubt in your mind whether a certain circumstance will fulfil the conditions of release or not, you may want to consider buying life insurance outside superannuation.
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Some final questions you might have

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What are the benefits of life insurance outside of superannuation?

While funding your life insurance through superannuation may be a more affordable option, there are some key benefits of funding cover outside super that may lead you away from this option:

  • Increased level of cover: Less restrictions on sum-insured to be applied for and greater range of additional benefits.
  • Straightforward claims and benefit payment process: Much more straightforward process for the payment of benefit in comparison to cover inside superannuation where it is first paid to the fund trustee.
  • More cover options: More types of cover and greater selection of policies available outside of super. Trauma Insurance is not available through superannuation.
  • Retirement funds are not reduced: You are not chipping away at the hard-earned retirement funds in your superannuation.
  • Tax-free benefit payments: The benefit payments are tax-free regardless of the beneficiary it is paid to.
  • Own Occupation: Own occupation definition of disability is only available for TPD insurance outside of superannuation.
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Flexible linking: combine your life cover inside super with policies outside of superannuation

You can now link your existing life insurance in super with policies outside super, such as income protection, TPD and trauma cover, with a new feature called flexible linking. This feature enables policyholders greater flexibility in managing their life insurance policies inside and outside of super, without sacrificing the quality of cover that they require. Currently, flexible linking is only available through select providers.

Flexible policy options

There are a few options to make your policy more flexible.

  • Bundling. One option is a combined policy where you can link multiple coverages, such as life and critical illness insurance, into one policy.
  • Flexible policy linking. Another option is policy linking. Policy linking allows you to split your policy ownership between your super fund and individual ownership.

Internal: Tax rules for superannuation life insurance

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4 Responses

  1. Default Gravatar
    ASAJILEMarch 31, 2017

    When should an insurance be unnecessary in superfund?

    • Staff
      ZubairApril 3, 2017Staff

      Hi ASAJILE,

      Thank you for your question. is a comparison and information service and we are not permitted to provide our users with personalised financial advice or product recommendations. You should contact your super fund directly for clarification on this matter.

      All the best,

  2. Default Gravatar
    AllanNovember 7, 2016

    If you have two superannuation policies, one personal and the other where a % of your wage from your employer puts into , and both have a life insurance cover, can you stop one insurance cover and use the premium amount to bolster your super contribution’s.

    • Staff
      MauriceNovember 8, 2016Staff

      Hi Allan,

      Great question. In some cases, you can consolidate the cover of two policies together. However this will depend on the specific conditions of the two policies.

      It’s a good idea to get in touch directly with your insurer or a financial adviser.

      I hope this helps,


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