Superannuation life insurance

Is insurance inside super a rip-off?

Many Australians* don't realise that their super fund usually includes some level of insurance to cover you in events like:

  • Death (pays to your loved ones)
  • Injury and illness
  • Total and permanent disablement

Your included insurance through super is taken out as a "group" policy which enables you to pay a premium that's standard for all members.

While super insurance sounds affordable, there are many limitations which make it less worth it for some policyholders (while there are benefits that make it more worth it for others).

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Maurice Thach
About the author
Maurice Thach is the publisher for life insurance at Finder. His favourite question is "Am I covered for _____?" Maurice hopes to make insurance cover inside and outside super a lot clearer for Australians.

What are the pros or cons of superannuation life insurance?

While it's convenient to use the policy that's included with super, there may be a standalone policy that's more suitable for your needs. It's worth reviewing the benefits and drawbacks of cover inside super:

ProsInside super: The good


  • It's usually cheaper
  • Reduced medical exam requirements
  • Pre-existing medical conditions may be covered

ConsInside super: The not so good


  • Harder to prove disability
  • The amount of cover may not be what you need
  • Reduces your final super balance

*In a recent study of 1,500 superannuation members, finder.com.au found that 1 in 5 members did not realise their fund included insurance.

How much is my super balance affected by insurance?

A downside of paying for insurance inside super is that your super balance is reduced, but by how much exactly? SelectingSuper published a list of the top 10 performing funds in the last 20 years. We broke down the costs of insurance included with each of these funds to work out how much more you could have over 20 years if you opted-out of insurance.

This calculation is a general indicator of how much more you could earn by opting out of super insurance cover. This analysis was completed in February 2019. Your balance may be impacted by the actual return your super fund achieves that year, how often a super fund accrues interest on your investment and the cost of your actual insurance cover based on your personal situation.

Fund Investment return (pa.) Balance after 20 years (with insurance) Balance after 20 years (if opted out of insurance) Extra balance
CareSuper 8.3% $461,027.02 $481,507.75 $20,480.73
Hostplus 8.2% $466,906.23 $476,482.38 $9,576.15
RestSuper 8.0% $439,078.98 $466,618.67 $27,539.70
EquipSuper 8.0% $422,280.74 $466,618.67 $44,337.93
AustralianSuper 8.0% $454,778.53 $466,618.67 $11,840.14
UniSuper 7.7% $442,555.75 $466,618.67 $24,062.92
AustSafe Super (Sunsuper) 7.7% $456,129.76 $466,618.67 $10,488.91
BUSSQ MySuper 7.6% $420,589.53 $447,096.84 $26,507.31
Cbus Industry Super 7.6% $418,831.59 $466,618.67 $47,787.08
HESTA 7.6% $438,619.15 $447,616.60 $8,997.45

Compare the cost of super inside insurance

Life insurance inside vs outside super

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


Inside super

Outside super
Premiums deducted automatically?
  • Yes
  • No (unless you link cover to your super)
Eats into your super balance?
  • Yes
  • No
Benefits are paid out to the person you name on your policy?
  • No, first to your trustee then your beneficiaries after conditions of release
  • Yes
Is automatically renewed?
  • Yes
  • You might need to inform your insurer
Can my life insurance be tailored?
  • Yes (check with the super fund)
  • Yes (check with insurer)
Pre-existing medical conditions automatically covered?
  • Might be automatically covered if bought under default super with an employer
  • Assessed on an individual basis

Should I cancel my super insurance?

Not so fast:

  • Don't rush to cancel cover inside your super fund. If you have a medical condition or a dangerous job, a default super insurance plan might cover you automatically and help out with your claim if you're forced out of work at some point. If you cancel and reapply for cover later on, you most likely won't be covered.

Instead:

  • Consider your life stages and what you need. For instance, if you are young and have no dependants you won't have much use for death insurance but you may need to consider income protection. Decide what you need covered and how much.
  • Keep cover, modify or cancel. Keep cover if it's suitable for your situation. Choose between super insurance or standalone cover. Cancel if you really have no need for it.
  • Review regularly. Your life insurance needs in five years will be different to what they are now.

Insurance comparisons inside and outside super

Compare and pay for policies with your super

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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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Name Product Maximum cover Maximum Entry Age Minimum Sum Insured Guaranteed Future Insurability Expiry Age Short Description
$15,000,000
69
$50,000
Yes
99
Get a quote for up to $15 million in life insurance cover. Cover can be tailored to meet your needs. Plus, get your first month free. T&C’s apply.
$1,000,000
64
$100,000
No
No expiry age as long as premiums are paid
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™.
$1,500,000
65
$100,000
Yes
No expiry age as long as premiums are paid
Get life cover up to $1.5 million. Plus, ahm health members can save 10% off premiums.
$1,500,000
69
$50,000
Yes
99
Receive a 10% discount on the second person when two applications are submitted at the same time, and both policies are issued.
$1,500,000
64
$100,000
No
No expiry age as long as premiums are paid
Cover up to $1.5 million with Guardian Life Insurance.
$1,500,000
65
$3,000
No
80
Protect what matters with a new Virgin Life Insurance policy. If eligible, you can earn 25,000 Velocity Points. Ends 1 July 2019. Min $80/month, min. 6 month policy to earn Points.
$2,000,000
59
$50,000
Yes
99
Get flexible life insurance up to the sum of $2,000,000.

Compare up to 4 providers

Name Product Calculated fees on $50,000 balance Insurance Included
$358
Death, TPD
Earn Velocity Frequent Flyer Points for making contributions to your super. T&Cs apply.
$467.65
Death, TPD, Income Protection
Enjoy discounted rates on banking products with ME Bank and health cover with GMHBA health insurance.
$603
Death, TPD, Income Protection
Choose between 14 different investment options, including a socially responsible option.
$520
Death, TPD, Income Protection
Socially responsible and ethical investment options available.
$450
Death, TPD
Pay no entry, exit or switching fees and enjoy a range of different investment options with QSuper.
$549.42
Death, TPD, Income Protection
$553
Death, TPD
Earn a Retirement Bonus of up to $4,800 when you open a new Income account. T&Cs apply.
$573.53
Death, TPD, Income Protection
Get access to one-on-one professional advice at no additional cost.
$662
Death, TPD, Income Protection
Choose investment options that align with your personal values.
$628
Death, TPD
Access offers, deals and discounts through the BT Super Benefits Now program.
$565
Death, TPD, Income Protection
Enjoy discounted health insurance with HCF.
$611.76
Death, TPD
Get fee-free advice on your superannuation as a BUSSQ member. T&Cs apply.
$601.76
Death, TPD
Receive a complimentary financial planning session with a Suncorp financial planner.
$621.76
Death, TPD, Salary Continuance
Enjoy discounted rates on banking products with ME Bank.
$529.76
Death, TPD
Access simple personal advice at no cost.
$703
Death, TPD
Gain access to lifestyle offers and benefits on NAB financial products and services.
$497.60
Death, TPD, Income Protection
Earn rewards and vouchers through the AIA Vitality program.
$361
Death, TPD, Income Protection
A flexible industry super fund for people who work in Australia’s higher education and research sector.

Compare up to 4 providers

The information in the table is based on data provided by Chant West Pty Ltd (AFSL 255320) which is itself supplied by third parties. While such information is believed to be accurate, Chant West does not accept responsibility for any inaccuracy in such information. Chant West’s Financial Services Guide is available at https://www.chantwest.com.au/financial-services-guide . Finder offers no guarantees or warranties about the data and we recommend that users make their own enquiries before relying on this information. Performance, fees and insurance data is based on each fund's default MySuper product. Where the performance, fees and insurance data for the MySuper fund vary according to the member's age, results for individuals between 40-49 years of age have been shown. Past performance is not a reliable indicator of future performance.

*Past performance data is for the period ending December 2018.

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

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

The best term and TPD life insurance of 2016

Policy Award Product details
MLC Life Cover with TPD Rider Best policy Wide range of features including accidental injury and guaranteed future insurability. Expiry age of 100 with clear pricing for all ages and occupations
TAL Accelerated Protection Highly commendable Option to buy back your life insurance cover in the event of a TPD claim and premium freeze benefits
AIA Priority Protection Highly commendable Unlimited cover for certain occupational categories and a funeral advancement amount up to $25,000

We also recommend reading these guides

In-depth guide to superannuation cover

How does superannuation insurance work?

Here's a run-down of how it works.

What's it for?

Insurance gives you peace of mind as it provides financial support if you die or need to stop work due to injury or illness.

How do you pay?

Cover is usually automatically included when you join a super fund and fees are deducted from your super.

What if I stop contributing to super?

If you or your employer stop making contributions, insurance fees will still be deducted from your super balance.

Can I cancel or change my insurance?

Yes you can. Just get in touch with your super fund or check your super's online platform.

The four types of insurance available in super

Terminal illness

Death

Total and permanent disability

Income protection

Pays if... Pays if you're likely to die within 24 months Pays to your family, dependants or estate if you die Pays if you're unlikely to ever work again due to illness or injury Replaces part of your income for a short period if you're unable to work (temporarily) due to illness or injury
Automatic cover Yes Yes Yes Yes
Cover usually ends at age 75 75 65 65
Pre-existing medical conditions: Are they covered? Yes Yes Yes Yes
Does your employment status at the date of an injury affect your cover? No No Yes Yes
Are you covered if a claim has been paid in the past under the same type of cover? No Not available No Yes
Is there a waiting period before claims can be made? No No Yes Yes

*Active employment. This means your ability to perform the duties of your normal job in a full-time capacity when your cover starts.

Can I choose where a death benefit goes?

  • Yes, but you will need to choose beneficiary that is a "binding" nomination.

The cost of cover or amount of cover can change as you get older

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.

Learn more about unit-based and fixed costs

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

A self-managed super fund (SMSF) is a super fund 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
  • Set up by your life insurer

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 will also differ according to the specific type of life insurance.

Life insurance Income protection TPD
Inside super Premiums Tax-deductible Tax-deductible Tax-deductible
Benefits Tax-free for dependant beneficiaries Taxed Taxed
Outside super Premiums Not tax-deductible Not tax-deductible Not tax-deductible
Benefits Tax-free (no matter who is the beneficiary) Tax-free Tax-free

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How is life cover through a self-managed super fund (SMSF) different?

Life insurance through an SMSF has increased in popularity over recent years whereby the 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.

Here's how life cover through an SMSF works

Self Managed Super Fund Diagram
Pros and cons of SMSF insuranceBack to top

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 an 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 situations. 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, 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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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.

Ready to compare policies? Receive a quote from an adviser

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*The products compared on this page are chosen from a range of offers available to us and are not representative of all the products available in the market. There is no perfect order or perfect ranking system for the products we list on our Site, so we provide you with the functionality to self-select, re-order and compare products. The initial display order is influenced by a range of factors including conversion rates, product costs and commercial arrangements, so please don't interpret the listing order as an endorsement or recommendation from us. We're happy to provide you with the tools you need to make better decisions, but we'd like you to make your own decisions and compare and assess products based on your own preferences, circumstances and needs.

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4 Responses

  1. Default Gravatar
    ASAJILEMarch 31, 2017

    When should an insurance be unnecessary in superfund?

    • Avatarfinder Customer Care
      ZubairApril 3, 2017Staff

      Hi ASAJILE,

      Thank you for your question.

      finder.com.au 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,
      Zubair

  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.

    • Avatarfinder Customer Care
      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,

      Maurice

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