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Life insurance through superannuation

When you get super in Australia, you automatically start paying life insurance – but it might not be good value.

Superannuation insurance vs direct life insurance Key differences
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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.

Death cover

Death cover

This policy pays a lump sum if you pass away during the policy's term. It may also pay out if you're diagnosed with an incurable illness.

Total and permanent disability

Total and permanent disability (TPD) insurance

Gives a lump-sum payment if you suffer a permanent injury or illness and are no longer fit to work. You'll usually have to be off work for a minimum of 3 or 6 months before your claim can be processed.

Income protection

Income protection

Pays a monthly benefit of up to 75% of your income if you're sick or have an accident and can no longer work. This type of cover isn't typically automatically included with your super.

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

Finder survey: Do Australians know how much life insurance cover their super includes?

Response
Yes56.7%
No43.3%
Source: Finder survey by Pure Profile of 1110 Australians, December 2023

6 key differences between direct life insurance and superannuation insurance

Direct life insuranceSuperannuation insurance
How do you buy a policy?Buy from an insurer or via a brokerCover is often, but not always, included automatically in a super account
About the applicationApply online or over the phone. You may need to do a medical as part of the underwriting processGuaranteed 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 benefitsYour 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 availablePayments are taken directly from your super contributions, and funds can get beneficial tax relief on premiums
How to amend or cancel a policyContact the life insurer directly and follow steps to cancelEdit 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 policyYou'll have to get in contact with your super fund to add or edit your preferred beneficiary
Gary Ross Hunter

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.
— Gary Ross Hunter, insurance expert

Am I eligible for insurance in super?

To get insurance via your super, you must:

  • Be at least 25 years old
  • Have at least $6,000 in your super account
  • 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

  • Reduces your retirement balance. If there's money regularly coming out of your super, it's less money available for your super fund to invest. This can eat into your retirement savings. Funds have returned as much as 22% in the most recent financial year.
  • 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.

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