Superannuation Life Insurance

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

If you have super fund, then the chances are you already have life insurance inside. Super funds that have been organised by employers are required to offer at least a minimum level of life cover. This is usually at a very competitive rate as the cover can be provided under one “group” policy which enables the employer to divide the risk across many people at once.

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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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5 questions everyone asks when it comes to superannuation and 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 a minimum level of protection for you and your family. For some people it's easier to pay for insurance automatically through super, instead of as an additional expense on top of your regular expenses.

2. What types of cover are available through super?

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

3. How are premiums paid for inside super?

Premiums are automatically deducted from your superannuation.

4. Can I apply for a new life insurance policy and fund 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.

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

Will there might not be much financial sense in paying for a death benefit without any dependents, life insurance inside super 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.

Should I get life insurance through super? The pros and con's of cover from a fund

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.

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.

Who receives payment in a claim?

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

Can I nominate a beneficiary?

  • Yes, you can personally nominate beneficiaries who will receive your insurance benefit payment.

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.

Are my premiums automatically deducted from my super fund?

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.

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.

Superannuation life insurance vs standalone life insurance

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

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

It is usually cheaper

The super fund is generally able to buy life insurance in bulk, and therefore negotiate a cheaper rate. It means that it can be an inexpensive way to purchase life insurance.

No medical required

As the insurance is usually taken out as a group policy through the super fund, individual medical checks aren’t required.

Tax benefits

The premiums which pay your life insurance come from your contributions, or those made by your employer to your super fund. Therefore, if you are self employed the premiums can be a tax deduction, and if your contributions are made as part of a salary sacrifice, then they are paid from your pre-tax income.

Abolition of Reasonable Benefit Limits (RBL)

Until July 2007 when the RBLs were abolished, life insurance benefits paid from a super fund could be included in an individual’s RBL, which could create tax issues for those people with a lot of super. However, these constraints are no longer an issue.

Most super funds include some level of life insurance cover

This means that even if you haven’t thought about taking out life insurance, you don’t think you need it, or you don’t know where to start, even if something happens to you in the process of choosing a life insurance policy, you are likely already covered to some extent through your super fund.

The not so good

The cover amount available may be less than you need

Because these are generic policies, the amount of life insurance through super is generally less than you would ideally need.

The benefit is paid to the super fund

This can mean that there is a delay from the time of your death to the time that your family receives the benefit amount from your life insurance policy.

You’re not in complete control of choosing your beneficiary

You will need to look at whether a life insurance policy through your super fund allows you to make a binding beneficiary nomination, otherwise you can’t ever be sure that the benefit payout will go to the people you’ve chosen. In many cases the trustee of the super fund has absolute discretion over who receives the death benefit, where all potential beneficiaries are required to come forward and express an interest in the benefit payout.

Tax requirements

There are more limitations on who can receive a tax free payout from a super fund life insurance benefit, and whose benefit will be taxed. For example, life insurance benefits from a super fund policy are generally only tax free if the beneficiary is a dependent such as a spouse, a child under 18, or anyone else who can be shown to have been financially dependent. When the benefit is paid to anyone who is not a dependent, the amount will be taxed at 16.5%. However, these tax rules do not apply to a life insurance policy which is held outside of a super fund.

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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

Do you need life insurance in addition to the coverage you get through your super fund?

In many cases, yes you do need additional coverage as the life insurance coverage amounts available through superannuation are generally lower than those offered by life insurance companies independently, and may not be enough to cover your expenses.

What types of insurance are available through superannuation?

Depending on your super fund provider, you can generally access life insurance (also known as death cover), total and permanent disability insurance (TPD), and income protection insurance (also known as salary continuance insurance).

What happens to your super fund life insurance when you die?

The trustee of the super fund will decide how the benefit amount is distributed.

How are beneficiaries nominated through super fund life insurance?

You can nominate your beneficiaries in any way you choose, but you will need to understand the terms and conditions of your super fund, to know when, how and if those nominations are valid.

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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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* The offers compared on this page are chosen from a range of products has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking financial advice and consider your personal financial circumstances when comparing products.

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4 Responses to Superannuation Life Insurance

  1. Default Gravatar
    ASAJILE | March 31, 2017

    When should an insurance be unnecessary in superfund?

    • Staff
      Zubair | April 3, 2017

      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
    Allan | November 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
      Maurice | November 8, 2016

      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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