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Insurance Inside Superannuation

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Most Australians have some life insurance and TPD through their superannuation, because it is automatically added. However, it’s crucial that you regularly review whether the cover amount and policy type still suit your unique requirements; especially after a significant life event. For example, getting married or divorced, starting a family or changing jobs.

Please contact your superannuation if you recently received a letter from the ATO stating that your insurance will be cancelled due it being a small, inactive fund.

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How does super life insurance work?

A life insurance policy taken out through your superannuation works differently than an individual policy purchased outside of super. Key differences include: Premiums are paid from your super fund, benefits and features might be limited and claiming could be delayed because you’ll need to meet all the conditions of release.

Life insurance pays a lump sum benefit to your loved ones when you die or get diagnosed with a terminal illness. Super funds generally make provisions to help members’ cover part of their insurance needs through their default cover. Meaning, a death benefit and Total and Permanent Disablement (TPD) policy are generally automatically added when you join a super fund. Some funds also including income protection insurance.

Beware of losing your insurance inside superannuation

As of 1 July 2019, life insurance inside super will be cancelled if you have a balance below $6,000 and your account has been inactive for more than 16 months (no contribution or roll-over). The trustee of your fund will transfer your inactive super fund to the ATO, where it will be consolidated with your active accounts.

How to check if you have insurance inside your super

You can check your annual super statement or access your super account online to find out what life insurance you have inside your superannuation. When doing so, remember to check:

What sort of insurance covers are available inside super?

Australian superannuation funds typically offer 3 main types of insurance inside super:

Death cover

A lump sum amount gets paid to your nominated beneficiaries when you die.

TPD Insurance

You receive a lump sum benefit if you are totally and permanently disablement, due to a sickness or injury, and can no longer work in Any occupation for which you are reasonably qualified for by education, experience or training.

Income protection

Provides a monthly benefit when you are unable to work for longer than your waiting period because of an accident or illness.

As of the 1 July 2014, Own occupation TPD and Trauma Insurance are no longer available through superannuation, including Self Manages Super Funds (SMSF).

Life insurance inside vs outside of superannuation

Criteria Inside super Outside super
PremiumsPremiums are paid from your superannuation account, so you have no out-of-pocket costs.Premiums are paid from your after-tax income, via credit card or direct debit.
Cover typesLife insurance, Any occupation TPD and income protection.Full range of life cover options including death cover, TPD, trauma insurance and income protection.
Tax on benefitsA death benefit paid to your financially dependent beneficiaries is generally tax-free. If paid to non-tax dependent beneficiaries, then benefits can be taxed up to 31.5%.Death benefits paid to your beneficiaries are generally tax-free.
Retirement savingsBecause life insurance premiums are paid from your super fund, it could reduce your retirement savings.Your retirement savings remain unaffected by your insurance premiums.

The above table is a general guide only, and you should consult an insurance broker and taxation specialist before making any decisions.

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Why hold Insurance in Super?

Superannuation life insurance provides hassle-free cover as it automatically includes death cover and TPD insurance, with the option of adding income protection. The biggest reason people take out insurance through Super is that there are no out-of-pocket costs – premiums are paid from the fund and not your taxable income.

Is insurance through super worth it?

Whether life insurance inside superannuation is worth it for you, depends on you and your family’s specific requirements. However, it might be more challenging to claim life insurance inside super because you’ll need to meet the insurance company’s terms and conditions as well as the SIS conditions of release.

To determine whether a superannuation life insurance policy is the right option for you, ask yourself whether the coverage you have is enough to protect yourself and your family should you die or be unable to work due to illness or injury.

Is it wise to pay life insurance via your superannuation?

Life insurance premiums inside superannuation get paid from your fund, so you have no out-of-pocket costs. However, it’s important to be aware of the potential erosion of your retirement savings.

Life insurance through super pros and cons

Advantages of having super life insurance policiesDisadvantages of life insurance through superannuation
Generally, more convenient and easier to manage.Your insurance could be cancelled if your fund is below $6,000 and has been inactive for the last 16 months
No out-of-pocket costs because premiums get paid from your superannuation account rather than debited from your personal account.Paying your premiums through your super fund may mean you have less money for when you retire.
Usually includes death cover, Any TPD and income protection insurance.Own TPD and Trauma insurance are not available for purchase through superannuation.
Life insurance premiums paid by your superannuation are generally tax deductible to the fund at a rate of 15%.If your beneficiaries are not tax-dependents, they might have to pay up to 31.5% tax on the death benefit they receive when you pass away.
The benefit payout might take longer because you would need to meet the policy terms and conditions, as well as the SIS legislation condition for release.
Generally, easier to dispute beneficiary nominations, so there is less certainty that your loved ones will receive your death benefit.
Income protection premiums might be tax deductible to your fund at 15%.Income protection inside super is restricted to indemnity cover.
You might lose built-in income protection benefits, which are usually available in policies held outside of super, for example, accommodation benefit.

How can you benefit more from insurance inside Super?

Recently, insurers have taken some steps to make policies taken out through super more flexible with several different ownership structures, including:

Flexible policy linking

Flexible policy linking allows you to hold a combined policy (where life insurance is combined with trauma and/or TPD insurance) but split the ownership between self-owned and superannuation owned.

Flexi linking allows you to hold life insurance within superannuation as well as trauma and Own occupation TPD outside of super, but still, take advantage of a combined policy.

Split TPD

Split TPD allows you to split the ownership of TPD between self and super owned. This enables you to hold the Own occupation portion of your TPD cover outside of Super and Any occupation within Super.

Split Income Protection

There are a few life insurance companies in Australia that will allow you to split your income protection between personally owned and through your super. By splitting income protection ownership, your premiums are paid from your superannuation account, and you can access the benefits only available from policies held outside of super.

Please contact an insurance broker to help you.

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How to claim superannuation insurance

To lodge a claim for insurance through your superannuation, you will generally need to notify the super fund and request the appropriate claim forms. For a claim to be paid, you’ll need to:

  • Satisfy the insurer’s definition of a claimable event as per their terms and conditions. If approved, the claim will then be paid to the trustee of your super fund.
  • Meet the rules of your Trust deed.
  • Meet the conditions of release as per the Superannuation Industry Legislation (SIS):
    – Death and diagnosis of a terminal illness.
    – For TPD it’s “permanent incapacity”.
    – With income protection, it’s “temporary incapacity”.

The claiming process can be long and confusing, so it might be best to enlist the help of an insurance specialist.

How to compare insurance inside super policies

Get insurance inside super quotes online in under 60 seconds. Use our comparison service for a side-by-side review of pricing, benefits and features from some of the largest life insurance companies in Australia.

  1. Choose the policy type suited to your unique requirements.
  2. Fill in the quote form with your ideal cover amount.
  3. Compare and review insurance inside super policies online.
  4. Apply, and a specialist will give you a call to help you complete the process.
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Frequently asked questions

  • Is life insurance through super tax deductible?

    Life insurance premiums paid by your super fund may be fully tax deductible to your fund. While a death benefit is usually tax-free, there might be tax implications should the benefit be paid to a non-tax dependent, like an adult child or business partner.
  • How to remove life insurance from super?

    Generally, your employer’s default super fund must offer a minimum level of life insurance. Your superannuation’s website will explain how you can increase, decrease or cancel your life insurance coverage.

    Before you decide to cancel, increase or decrease your superannuation life insurance, make sure you know how much cover you need to protect you and your family.

  • Can I have both a self-owned and a super life insurance policy?

    Yes, you can have multiple life insurance policies, purchased through your superannuation, directly from the insurer or through an insurance broker. If it’s the right option for you will depend on your requirements and whether you need extra coverage because you have a family or outstanding loans and debts.
  • Do all super funds have life insurance?

    Yes, all superannuation funds must add default insurance coverage of death and TPD for their members. However, if you have not contributed to your fund in the last 16 months and it’s below $6,000 your insurance might get cancelled.

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