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Many Australians* don't realise that their super fund usually includes some level of insurance to cover you in events like:
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).
Compare your insurance options
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:
Inside super: The good
Inside super: The not so good*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.
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
Here are the key differences between life insurance inside and outside of super:
 Inside super |
 Outside super |
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|---|---|---|
| Premiums deducted automatically? |
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| Eats into your super balance? |
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| Benefits are paid out to the person you name on your policy? |
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| Is automatically renewed? |
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| Can my life insurance be tailored? |
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| Pre-existing medical conditions automatically covered? |
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Not so fast:
Instead:
According to the ATO (Australian Taxation Office), roughly 39% of Aussies have more than one super account. If this is you, there's a chance you have more than one insurance policy, which is in most cases useless. Be sure to review these policies and consolidate super where possible.
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.
| 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 |
Super insurance can be a good deal, but make sure you know what your policy covers you for. Read more…
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.
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|---|---|---|---|---|
| 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.
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.
You can often choose between two types of payments: unit-based cover or fixed cover.
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.
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:
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:
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 |
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.
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.
There are a few options to make your policy more flexible.
Ready to compare policies? Receive a quote from an adviser
Back to top*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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When should an insurance be unnecessary in superfund?
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
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.
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