Life insurance through superannuation

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 opt out by going online to cancel.

There are benefits and disadvantages of having life insurance through superannuation, but for most people, the life insurance you have inside your super is very easy to forget about. Here's a brief guide to the pros and cons, so you can work out whether it makes sense for you.

How does life insurance through super work?

Life insurance 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. Insurance premiums are paid out of the money in your super account, meaning you don't have to pay from your take-home earnings.

Death cover

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 (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

Pays a monthly benefit of up to 70% of your income if you're sick or have an accident and can no longer work, though some policies pay a higher rate for the first 6 months. This type of cover isn't typically automatically included with your super.

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

Is it better to get life insurance through super? Pros and cons

I cancelled my life insurance inside 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

Journalist

6 key differences between direct life insurance and superannuation insurance

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, though you can choose to opt out of insurance cover or change your cover by contacting your super fund.

It's not always 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. But if you have a mortgage or a family and you want to provide for them in the event something happens, taking out life insurance through super can be more affordable on your cash flow, as you don't need to pay for it with your regular wage income.

I've had super life insurance for a decade

"I've had life insurance and income protection through my super for 10 years. It suits me because I don't have to budget for it out of my normal family budget – it costs about $100 a month, and it's deducted automatically from my super balance. This will impact my long-term retirement funds, but hopefully my other investments make up for it!"

Sarah Megginson

Money expert + media spokesperson

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.

Expert insight: Is it enough cover?

"If you want full coverage for a broader range of events, you need to take out a fully underwritten TPD policy."

Brenton Tong

Financial adviser and group CEO, Financial Spectrum

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.

Common questions about superannuation and life insurance

• Is super insurance worth it?

  There are a number of benefits to having insurance in your super. Premiums can be cheaper than with standalone life insurance. As well as lowering the cost of your insurance, you can get cover automatically and payments come straight out of your super. You can get peace of mind with up to 3 main covers: death insurance, TPD and income protection.

  However, it's important to understand you are likely to have far less favourable terms compared with standalone cover.

• Is life insurance through super tax deductible?

  Generally, no. The Australian Taxation Office (ATO) states that premiums on insurance policies taken through super accounts are not personally tax deductible. This is because the cost of the insurance comes from your superannuation balance, rather than your income.

  However, you could choose to "salary sacrifice" into your super, giving you more to help meet the cost of your premiums. Whether or not this is the right option for you is something you may want to talk through with a financial adviser.

• Is life insurance compulsory with superannuation?

  No, life insurance inside super is not compulsory. You can cancel your cover at any time.

• What should I look for when comparing insurance in super funds?

  There are 3 things to compare: How much the insurance costs, the amount of cover offered and any exclusions that may apply to you.

  Also, check any other super accounts you hold to make sure you avoid paying more than once for your insurance.

• Will I automatically get life insurance when I open a super account?

  No. Since April 2020, people under the age of 25 no longer automatically receive life insurance when they open a super account, unless they're working in a high-risk job. Policies will also be cancelled if they have balances with less than $6,000 in them or haven't received contributions for at least 16 months.

• How do superannuation insurance claims work?

  Generally, the insurer and super fund will need to receive any relevant paperwork (such as a death certificate and a will). If there's a valid and binding beneficiary nomination, any benefits will be paid to the person nominated.

  If a claim gets turned down by the insurer, it may go to the superannuation trustee for a further review. You could reach out to a lawyer if you'd like your rejected claim to be investigated.

• How much is life insurance through super?

  It's tricky to put a number on this. It could start from just a few dollars per month for cover. Premiums vary depending on a range of factors, including whether your insurance is automatically linked to your super account on a default basis, or you opt to make voluntary cover contributions.

• Can you have trauma insurance in super?

  Super funds don't offer new trauma insurance policies, but if your super fund offered trauma cover before July 2014, you may still have this insurance. Get in touch with your super fund to find out.

  Trauma insurance offers a lump sum if you're diagnosed with a severe illness that's covered in your insurance policy terms. It can be taken out with life insurance or as a standalone policy.

• Can you add insurance or increase existing insurance inside super?

  It depends. If you can, you'll often need to answer health and lifestyle questions in order to increase your cover. The reason life insurance inside super is generally cheaper than standalone policies is that it's essentially a one-size-fits-all.

  Life insurance through superannuation can be a tricky area to navigate. Speak to a financial adviser if you want extra support.

• How do I cancel insurance in my super?

  To cancel your cover, start by calling your super fund or log into your super account. Follow any necessary steps and keep in mind that you won't be insured for that cover from the date your cancellation is accepted.

Written by

James Martin

Journalist

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James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, Insurance News, 7NEWS and The Guardian. An experienced journalist, James' work has featured in publications including The Irish Times, Companies100 and In Business. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146). See full bio

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James has written 167 Finder guides across topics including:

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Co-written by

Gary Ross Hunter

Journalist

Gary Ross Hunter has over 6 years of expertise writing about insurance, including life, health, home, and car insurance. Having reviewed hundreds of product disclosure statements and published over 800 articles, he loves simplifying complex insurance topics for everyday readers. Gary has contributed to major outlets like Yahoo Finance, The Sydney Morning Herald, and news.com.au, and holds a Bachelor of Arts (Honours) in English Literature from the University of Glasgow, along with a Tier 2 General Advice certification, ensuring his work adheres to ASIC’s RG146 standards. See full bio

Gary Ross's expertise

Gary Ross has written 522 Finder guides across topics including:

• Health, home, life, car, pet and travel insurance
• Managing the cost of living