Benefits of Superannuation Life Insurance

Why take out life insurance through superannuation?

The Investment and Financial Services Association or IFSA has estimated that 70% of life insurance policies are purchased through superannuation funds. This figure was based on the number of people covered under group insurance policies by employers and industry superannuation fund schemes. While life insurance through superannuation can provide some benefits including, lower premiums and the possibility of tax deductions for premium payments, there are some drawbacks that may impact your decision to choose this option over life cover outside of super.

This article will discuss both the benefits and drawbacks of purchasing life insurance through superannuation

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Benefits of purchasing life insurance in superannuation

  • Cover is generally more affordable as it is bought in bulk for employees; this enables applicants to secure a competitive rate.
  • The basic cover does not usually require the applicant to undergo medical underwriting. Moreover, some super funds give additional cover without requiring medical checks. There is also generally less screening of applicants occupation during underwriting.
  • Life insurance purchased through your superannuation is tax-effective as it is paid out of the contributions made by your employers or from your personal contributions. This generates a direct tax deduction for those who are self-employed and from pre-tax income in salary sacrifice cases.
  • Reduced impact on take-home salary as premiums are covered by funds accumulated in superannuation.
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Some considerations about life insurance and superannuation


A key benefit of life insurance purchased through superannuation is the reduced impact on cash flow as policy owners do not have to sacrifice any of their take home salary to cover premium payments. Policies bought under group policies through superannuation is generally much cheaper. In addition, the payments can also be funded by your employer or via salary sacrifice. As mentioned previously, cover can be acquired without medical underwriting.

Reduction of Superannuation Earnings

While the price of the premium is necessary, you should also consider the effect of the insurance premium deductions in your superannuation balance. It should be noted that since the superannuation contribution is capped, it restricts your contributions so you need to consider the impact of the payment for your life insurance policy in line with your overall retirement savings. Moreover, you are also faced with the risk of not saving enough money to meet your retirement goals.

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Drawbacks of life insurance through superannuation to be aware of

  • Limited Range of Coverage: Policies provided through superannuation are generally less comprehensive than retail policies outside of superannuation. Applicant must ensure they are aware of what they are covered for and conditions for benefit payment.
  • Convoluted Claims Process: As benefit payments are initially paid to the fund trustee, the process of distributing the benefit payments to beneficiaries can be a drawn out.
  • Beneficiary Receiving Payment: Unless the policyholder has a binding beneficiary nomination in place, there is no guarantee of who will receive the benefit payment.
  • Taxation of Benefits: There may be a tax liability for benefits paid to non-dependents. Dependents are defined as;
    • A child of the policyholder under 18 years of age
    • A surviving spouse or De facto spouse of the policyholder
    • An ex spouse of the policyholder
    • Any person who is financially dependent on the policyholder at the time of their death, or at the time that the death benefit is paid.
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What types of life insurance are available through superannuation?

Generally, death and disability cover are automatically included for life insurance cover provided through superannuation. However, as life insurance policies evolve, another type of cover has been added to cover your ability to earn that is called the Temporary Salary Continuance, also known as Income Protection.

  • Death Cover. Death cover under your super fund pays a lump sum in the event of the insured’s death.
  • Total and Permanent Disability. If you have become totally or permanently disabled, there is a Total Permanent Disability insurance built through your super fund that will pay a lump sum to help cover all your medical and rehabilitation costs. Own Occupation TPD Insurance is no longer available through superannuation.

In order to make a claim, the policyholder will need to submit evidence to the trustee of the fund to qualify for the benefit payment;

  • Identification documents of the policyholder
  • Reports from certified medical practitioners
  • Any additional medical evidence to support claim
  • Income Protection Insurance. This coverage will provide up to 75% of your total income in the event you have become disabled because of an injury that was sustained at work or suffer from a serious illness and are unable to perform duties in your occupation to the same capacity. This cover could extend up to the retirement age of 65 years old if you have become totally unable to go back to work.
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So should I take out life insurance via superannuation?

Taking out life insurance through superannuation has both benefits and drawbacks and the decision to take out cover inside or outside of super will really be dependent on ones own situation and cover requirements. Anyone considering life cover through superannuation must have a clear understanding of what they are actually covered for and the tax treatment of their policy.

Some final questions you might have about taking out cover through super

Is life insurance cheaper inside superannuation?

Life insurance provided by superannuation funds are generally cheaper as policies are purchased in bulk. However, retail policies are generally more comprehensive with greater range of cover options and greater flexibility for applicants to tailor cover closer towards their needs.

Can I arrange insurance through superannuation fund myself?

Superannuation funds will provide a default level of life cover that can be adjusted by members to closer meet cover requirements i.e. increase the sum-insured. If you wish to take out a standalone policy with a retail provider and have the premiums funded via superannuation, you will need to go through the regular application process.

Are superannuation funds required to hold a life insurance policy?

Superannuation funds provided by employers are required to offer a minimum default level of life cover. Superannuation funds will typically offer a default level of cover to members.

Can I have life insurance added to my superannuation?

Most superannuation funds will provide a default level of life insurance to members, it is possible to increase this cover and add other types of insurance though you may be required undertake additional medical underwriting.

Can you get spouse contribution for superannuation life insurance?

Yes it is possible to make contributions into your spouse's account. Contributions will need to be made on a post-tax basis.

How is life insurance outside of superannuation funded?

Premiums for life insurance outside of superannuation are paid by the policyholder. Premiums can be paid by money order or cheque, direct debit, credit card or BPAY.

How long before a life insurance claim through super will be paid?

This will be dependent on the waiting period applied to the policy. There may be delays in payment for the life insurance benefit for policies funded through superannuation as funds are first paid to the funds trustee who will then distribute the payment.

Can you reduce the life insurance in your superannuation?

Members will generally have the option to reduce or opt out of the automatic cover that is provided in their superannuation.

What types of insurance is available through superannuation?

Super funds generally have three types of cover available to members;

  • Life Cover
  • TPD
  • Income Protection

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Richard Laycock

Richard is the senior insurance writer at and is on a mission to make insurance easier to understand.

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