Super life insurance vs standalone policies

Father and child sitting at table, thinking about life insurance.

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

It is a good idea to check your super fund first, because it’s possible there’s already a life insurance policy under your name. According to ASIC's personal finance initiative, more than 70% of Australians who have life insurance hold it through their super fund.

Recent regulation changes have cut life insurance cover for low-balance accounts which haven't seen contributions in more than 16 months. Similarly, people under 25 now have to opt-in for life insurance via super. This has been in an effort to reduced people doubling up on premium payments which are taken directly out of super balances.

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

There are generally three kinds of life insurance via your super: life cover, TPD insurance and income protection insurance.

  • Life cover provides a lump sum pay-out to your beneficiaries in the case of your death.
  • Total and permanent disability insurance (TPD) pays you a benefit if you are disabled and unlikely to ever work again.
  • Income protection covers your income if you can't work for a period of months or years.

There’s a lot going for the life insurance super funds provide – they're convenient, have low premiums and come with tax benefits. One major drawback is that it does cut into your super, leaving you with less money in retirement. Let’s take a detailed look at pros and cons below:


Cheaper than standalone policies. Superannuation funds buy insurance policies in bulk. 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 lower premiums than what insurance providers can offer them directly.

No medicals required. Some life insurance companies require proof 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 tied into your super, they rarely ask you to do so.

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 mark-up.

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. This means you'll accrue less interest on your super balance and so by 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. 

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 insurance provider.

Payout takes longer. If you die prematurely, your loved ones will 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.

Standalone life insurance policies

The insurance industry is big, and with hundreds of policy options available there’s bound to be one out there that suits your requirements. Let’s run through some of the things to consider with a solo life insurance policy:


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 providers 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. 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. Because standalone policies 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 super life insurance premiums get taken from your superannuation balance (remember: your compulsory super contributions are made before tax). However, depending on your situation you may qualify for a tax deduction on your standalone 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 is a great place to kick start your life insurance comparison journey.

* Terms, conditions, exclusions, limits and sub-limits may apply to any of the insurance products shown on the Mozo website. These terms, conditions, exclusions, limits and sub-limits could affect the level of benefits and cover available under any of the insurance products shown on the Mozo website. Please refer to the relevant Product Disclosure Statement and the Target Market Determination on the provider's website for further information before making any decisions about an insurance product.

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