Super life insurance vs standalone policies

By Mozo ·

In the market to purchase a life insurance policy? Then you’ve got two choices. Either you can purchase a policy directly from an insurer, or get one through your super fund.

Before you shell out for a new life insurance policy, it is a good idea to first check your super fund because it’s possible that there’s a life insurance policy under your name already without you being aware of it. Did you know that it is compulsory for self managed super funds and default employer superannuation funds to offer their members life insurance? Consumer advocacy group CHOICE has estimated that Aussies may be wasting as much as $1.96 billion annually on duplicate life insurance policies so it is worth taking the time to check the status of your fund.

But just because there is a life insurance policy option with your super fund, it doesn’t necessarily mean that this is going to be the best policy for you. Policies offered by super funds can have different features and benefits to policies available through insurers directly.

This guide is here to help you compare the policies offered by super funds along with standalone policies, so you can settle on the right choice for you...

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Life Insurance Comparison Table - page last updated September 12, 2020

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    Life insurance built into your super:

    There’s a lot going for the life insurance that super funds provide such as convenience, low premiums and tax benefits to name a few. One major drawback however, is that if you don’t continue to top up your super, you’ll be left with less money to retire with. Let’s take a detailed look at pros and cons below:


    Cheaper than standalone policies. Superannuation funds buy insurance policies in bulk. And because insurance risk is spread over a greater number of people, it gives the super fund access to low prices. This is why super funds are known to offer Aussies lower premiums than what insurers can offer them directly.

    No medicals required. Some life insurers require proof that you’re in good health which can include supplying them with your medical history or answering a series of questions over the phone. But when it comes to the policies that get tied into your super, they rarely ask you to do that at all.

    Tax benefits. Not only are all your superannuation contributions made before your tax rate kicks in, the life insurance premiums bundled with them are too. This means your premium doesn’t get slugged with a GST markup.

    It won’t affect your everyday budget. Super funds deduct the premium from your super balance after you’ve made your compulsory super contributions so you don’t have to actively save this money each month. There is a downside to this of course, which leads us to the…


    Chips away at your retirement savings. Built in life insurance premiums get taken out of your super balance, which means that by the time you reach retirement you’ll have less funds sitting there for you. That’s why it can be a good idea to top up your super whenever you can, or, if your employer allows it, increase the super contributions payroll makes on behalf of you come payday.

    Limited level of cover. Sometimes, when it comes to life insurance you really do get what you pay for. You may find that the level of cover offered by your super fund is too basic for your needs, or it doesn’t cover you for all events that you require cover for. For instance, if you’re a casual worker and have a fatal accident on site, some policy T&Cs  may not cover you).

    One size fits all. Insurance offered by super funds are nearly always generic in nature and leave no room for you to customise your level of cover. For instance, if you’re a young woman who doesn’t smoke or drink, you may find it’s cheaper to opt for a tailored stand alone policy because you’re less of a risk to your life insurer.

    Payout takes longer. If you died prematurely, your loved ones would receive a payout from your superannuation fund rather than your insurance provider. For this reason, sometimes the payout process can be drawn out longer, which could potentially impact on your family’s financial situation.

    Opting for a standalone life insurance policy instead:

    The insurance industry is big, and with hundreds of policy options available there’s bound to be one out there that suits your requirements to a T. Let’s run through some of the options of going for a life insurance policy solo:


    Retire with more. Super funds are a great place to grow your retirement savings over time. This means that by not dipping into your balance to pay for life insurance, you’ll be giving yourself more funds to retire with down the track.

    Higher level of cover. Life insurance policies that aren’t connected to your super are known to offer greater levels of coverage (though this can drive up premiums too). For instance, with some insurers you can choose the coverage amount (such as a $1 million payout to your dependents) or provide extra cover for funeral expenses.

    More features. Standalone life insurance policies can also come with perks such as loyalty discounts, an advance payment guarantee for your family members should you die prematurely or offer you additional insurance policies at a lower price.

    Comparison freedom. The best thing about saying “no” to life insurance on your super fund application form is that you get to shop around for policy that is a better fit for your needs! That’s where Mozo’s comparison hub comes in, giving you the ability to browse through a range of policies.


    More expensive. In a perfect world you’d take out the most extensive life insurance cover possible, but that could involve forking out potentially hundreds (or thousands) of dollars a year for that peace of mind. So while standalone policies have a lot to offer, one of the downsides is that because they are more customised, they can cost more than generic policies offered via super.

    Not (necessarily) tax exempt. As we mentioned earlier, standalone life insurance policies are paid for with post-tax dollars, whereas life insurance premiums get taken from your superannuation balance (remember: your compulsory super contributions are made before tax). But depending on your situation, when lodging a tax return you may qualify for a deduction on your stand alone life insurance expenses.  

    Requires effort on your part. When it comes to choosing the right life insurance policy for you, it does pay to read the fine print carefully. On the plus side, Mozo’s listing of policies is a great place to kick start your comparison journey.

    So this brings us to the end of the our guide on life insurance super versus standalone policies. Which type will you settle on?

    *Any information provided on this page should be considered a summary and general advice only. All information should be verified before purchase via the relevant Product Disclosure Statement (PDS).

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