Term Life Insurance and Superannuation

Considering taking out term life insurance through superannuation? Find out how it works.

Term Life & Super Facts

  • Term life cover is available through superannuation and is often included by default by your employer.

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Protecting the financial future of your loved ones should be a priority. You would want to know that should things don’t go according to plan, they would be well taken care of. This is when term life insurance can help.

Also known as life cover, it provides a lump sum benefit payment to your financial dependents in the event of your death or if you are terminally ill, and you are not expected to live for longer than 12 months. Term life insurance is also relatively more affordable compared to other types of cover, such as total and permanent disability (TPD) and trauma cover.

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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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Can I fund term life insurance through my superannuation?

You can access term life cover through superannuation. More and more Australians these days opt for life insurance inside their superannuation, as it is considered to be more affordable than policies held outside of super. You may already have cover that is automatically included through your employer’s nominated super fund, so it important to check if a default cover is in place.

Benefits and drawbacks of taking out term life insurance through superannuation

If you are considering term life insurance inside your superannuation, there are a number of advantages and disadvantages that you should be aware of:

  • Cover is more cost-effective inside superannuation, as policies are bought in bulk by super funds.
  • Premiums are paid using the balance in your super, so it does not have any effect on your take home pay.
  • Automatic acceptance - no blood tests or medical exams are required.
  • If you are a smoker, you get to pay the same rates as those who don’t smoke.
  • Tax benefits for self-employed workers, as they can declare tax deduction on super contributions used to fund insurance premiums.
  • Limited cover compared to term life insurance policy held outside of super.
  • Cover is quite basic, with limited benefits and features.
  • Cover may lapse without you realising, especially if your employer has failed to pay contributions to your super, if you change jobs or superannuation funds.
  • Complex claims process, as the benefit will first be paid to the fund trustee who will decide on the eligibility of the claim. This can result in a delay of the beneficiaries receiving the proceeds of the policy.
  • Your retirement funds will decrease over time from your term life insurance premiums.

Nominating your beneficiaries for term life insurance inside super

When you own term life cover inside superannuation, it means that the policy is owned by a super fund trustee. So, sometimes your life insurance benefit payments may not be received by the people you intended.

Upon a successful claim, your insurer will pay the term life benefits to your super fund trustee, which form as part of the balance on your superannuation in the event of your death. It is important to understand that when no nomination is in place, the trustee has full discretion to decide who will get the benefit payment, which may go to completely different people or entities.

In order for your term life insurance proceeds to go to your intended beneficiaries, it is important to formally document who they are. Consider a binding nomination agreement under the Superannuation Industry (Supervision) Act 1993 (SIS). This can ensure that your nominated beneficiaries will receive your superannuation benefit, including your term life insurance proceeds, provided that it is valid at the time of death.

You can lodge a binding death benefit nomination with all super funds, in which you will be required to complete a form and a small fee may be charged on your super on a yearly basis.

Superannuation Rollover: The alternative to term life insurance within super

If you are looking for more comprehensive term life cover and you still prefer to fund your insurance premiums with the balance in your superannuation, consider a life insurance superannuation rollover.

With a superannuation rollover, you get to move the funds in your existing complying super fund across to a different superannuation fund that is owned by your nominated insurance provider. Once the funds have been transferred, you can use the balance to pay for your term life insurance premiums, in which the policy is provider by the insurance provider.

One of the benefits of superannuation rollover is its provision of access to a wider variety of features and benefits with your term life insurance policy, while still allowing you to keep on top of the premiums through your super.

Featured Term Life Insurance Providers and Products with Superannuation Option
  • AMP Life Protection Plan
  • AIA Priority Protection
  • Asteron Life Complete
  • BT Super for Life Insurance
  • Comminsure Total Care Plan Super
  • MLC Life Insurance and Superannuation
  • OnePath OneCare Super
  • TAL Superannuation Life Insurance
  • Zurich Superannuation Term Life Plus

Should I consider Term Life Cover through Superannuation?

If you have just started in the workforce, with minimal debts and no dependents, term life insurance inside superannuation may be more suitable for you. However, as you accumulate more assets and debts, including raising a family of your own, term life insurance within superannuation may not be sufficient to cover your growing needs.

It is important to also consider term life insurance outside a superannuation environment, as it allows greater flexibility for you to nominate a cover amount, with features and benefits, most suited to your needs. When in doubt, consider speaking to an insurance consultant who can provide you with tailored advice and recommend policies that are suitable to your personal circumstances.

Compare superannuation term life insurance

William Eve

Will is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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