The ultimate hack: save on insurance through super, without depleting your retirement

If life insurance or other personal cover is on your mind – perhaps you have a family to protect, a career with unique risks, or simply want the security of knowing you're prepared for unexpected events – then finding a sustainable way to manage premium payments can be a real challenge.

It's fairly common knowledge these days that you can pay for such cover through superannuation, freeing up some of that crucial out-of-pocket cashflow. Of course, this can eat into your retirement funds, thus impacting your long-term retirement goals. 

But what if there was a strategic way to handle these costs, optimising the use of your super without negatively impacting your future financial security?

There is, and we’ll show you how.

Balancing life insurance cover and long-term super savings

Many Aussies already hold valuable personal cover, such as Life Cover, which pays a lump sum if you pass away or are terminally ill. There's also Total and Permanent Disability (TPD) insurance, providing a lump sum if you become permanently unable to work, and Income Protection insurance, offering regular payments if you can't work due to illness or injury. 

These types of life insurance cover are often acquired through superannuation.

But simply having this cover within your fund doesn't automatically protect your retirement savings. The real key lies in how you pay for it.

The life insurance through super hack

Here’s the approach we’ve worked out for you: you can effectively ensure your super balance isn't eroded by insurance premiums by making a tax-smart move: a concessional super contribution in the exact amount you need to pay your premium..

This strategy works particularly well if your employer offers salary sacrifice. Here’s how it works with salary sacrifice:

Let's say your life insurance premiums inside super cost you $1,000 a year.

1. You set up salary sacrifice with your employer. You arrange for an additional $1,176 to be contributed from your pre-tax pay into your super fund each year. This amount accounts for the 15% contributions tax (which is typically less than your personal income tax rate), ensuring $1,000 reaches your super to cover your premium.
2. Premium deducted. Your super fund deducts that $1,000 directly from your super balance to cover your life insurance premiums. Your immediate cash flow remains unaffected.
3. The result? You've covered your insurance cost with money that has received a tax benefit, ensuring your retirement savings are not depleted by those premiums. This helps you get your insurance more affordably while keeping your super strong.

What if salary sacrifice isn't an option?

You can still achieve a similar result by making a personal concessional contribution directly from your after-tax income. 

To effectively cover a $1,000 premium, you'd generally contribute around the same $1,176 as in the scenario above. While it’s taxed again at 15% within super, you can later claim that entire $1,176 back as a tax deduction in your annual return - meaning you only end up paying 15% tax on that original income (as opposed to the much higher income tax many Aussies currently pay).

In either scenario, it’s important to remember that you won’t receive the same tax benefits if your additional contribution exceeds your annual concessional contribution cap of $30k. However, this probably won’t be a factor for most Aussies.

What to consider for your super insurance

Of course, it’s important to make sure your insurance is the right fit. While your super fund can offer discounts due to group buying power, options are usually limited to the single insurer of their choice, even if different coverage types and levels are available.

So, by all means, get some life insurance quotes outside of super, especially if you're unsure about your fund's offerings. But if price is your main factor, remember to consider the potential tax benefits of holding cover within your super fund.

And if you do want to use our clever approach, but you’re not happy with what your super offers, it's always smart to compare options and find a fund that offers something better suited.

Start by checking out the winners of our 2025 Mozo experts choice awards for our best superannuation picks, or compare some attractive options below:

Aware super disclaimers:

^SuperRatings Fund Crediting Rate Survey, March 2025. Based on SR50 Growth (77-90) Index. Returns are after tax and investment management expenses but before the deduction of administration fees. Past performance is not an indicator of future performance.

^^Chant West Super Fund Fee Survey December 2024, High Growth [81-95% in growth assets] investment option index and $50,000 account balance. Fees and costs can vary from year to year. Past fees and costs are not a reliable indicator of future fees and costs. Fees and comparisons may differ for other investment options and account balances. Aware Super’s High Growth option as published in the Aware Super Future Saver PDS.

Superhero disclaimers:

#Low Fees - Findings based on Superhero’s analysis of SuperRatings’ Fee Report - October 2024, accessed 5 December 2024. Fees for Superhero Super’s Growth and High Growth investment options are in the top quartile based on Total Fees and compared against the SR50 Balanced (60-76) and SR50 High Growth (91-100) Indices respectively. Performance - Findings based on Superhero’s analysis of SuperRatings’ Fund Crediting Rate Survey – October 2024, accessed 5 December 2024. Based on Superhero Super’s Growth and High Growth options being in the top quartile for one year return across the SR50 Balanced (60-76) and SR50 High Growth (91-100) Indices respectively. Refer to the Superhero Super PDS and TMD for found at superhero.com.au/support/documents for more information.

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