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Life insurance through super. Is it worth it?

You’re probably aware by now that you can get insurance through your super fund. It’s a convenient and often cost-effective way to ensure financial protection for you and your loved ones. But is it the right choice? Let’s look at the benefits and drawbacks to help you decide.

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Types of life insurance in super

The various types of insurance offered through super all fall under the category of ‘life insurance’, which is all about providing you and/or your family a source of income should your normal income cease. The three forms of life insurance usually offered are:

  • Life insurance (or death cover). This type of insurance pays your dependants or beneficiaries a lump sum if you pass away. It’s designed to replace the income you otherwise would have provided throughout the rest of your working life, allowing your family to maintain as much stability as possible. 
  • Total and permanent disability insurance. This type of insurance pays you a lump sum if you experience a debilitating sickness or injury that prevents you from ever working again, giving you the stability you need for the remainder of your life.
  • Income protection insurance. This type of insurance provides you with regular payments (usually monthly) if you can’t work temporarily because of sickness or injury, allowing you to continue paying your bills and focus on your recovery.

As you can see, all of these insurances focus on replacing your income; you won’t find things like health insurance, car insurance or home insurance here.

Do I have to get life insurance through super?

No, you don't have to get life insurance through your super, but you may need to opt out of it if you don't want it.

Superannuation funds often automatically enrol members in life insurance to provide financial protection in cases of retirement, death, and disability, reducing the economic burden on society. Before 2020, most members were automatically enrolled in default insurance cover through their super.

However, changes implemented in 2020 under the "Putting Members' Interests First" (PMIF) legislation require super funds to only provide automatic insurance to members over the age of 25 and with super balances above $6,000. This change aimed to prevent the erosion of super balances for younger members and those with low balances due to insurance premiums.

If you have more than $6,000 in your super account, opened it before 2020, and haven't opted out, you likely have insurance through your super.

You have the option to opt out of this insurance and choose a similar policy outside of super, or you can decide not to have life insurance at all (although this last option is not generally recommended).

Is life insurance through super worth it?

Let’s look at some pros and cons of getting life insurance inside versus outside of your super:

Life insurance inside super
Premiums are generally cheaper.
Payments come from your super balance, not your take-home pay.

Paid with tax-advantaged concessional contributions.
Fewer health checks and less paperwork typically required.

Reduces your retirement savings.
Cover might be lower than what you can find outside of super.
Changing super funds may end your cover.
Payouts can be delayed, since the super fund is the intermediary.
Limits on who your beneficiary can be.

Life insurance outside super
Tailor the policy to fit your needs.
More comprehensive coverage options.
Beneficiaries usually receive payouts directly.
Premiums may be tax-deductible.

Premiums can be higher.
You need to manage regular premium payments.
Policies may have more exclusions.

As you can see, life insurance through super is worth it, if you value straightforward, basic insurance that doesn’t reduce your take home pay. 

However, if you need more customisation and potentially more comprehensive cover, life insurance outside of your super may be the ticket.

Advantages of life insurance within super

Life insurance through your super offers several benefits that make it an attractive option. These are:

  • Cost-effective. Super funds have buying power, which can result in lower premiums than you might pay for insurance outside of your fund.
  • Convenient payment. The premiums are deducted directly from your super balance, rather than your take home pay. This not only means more in your pocket at payday, but it also means you’re less likely to miss payments.
  • Simplified application process. Life insurance through your super fund usually requires less paperwork,  fewer medical checks and often guaranteed acceptance, making it easier to get covered.
  • Tax-effective. Premiums are paid from your super contributions, which are taxed at a lower rate than your regular income.

Disadvantages of life insurance within super

While there are clear benefits, there are also some drawbacks to getting life insurance through your super fund. These include:

  • Limited coverage. The default cover may offer less coverage than policies available outside of super.
  • Impact on retirement savings. Since premiums are deducted from your super balance, it will eat away at your retirement savings over time - unless you make personal contributions to cover the shortfall.
  • Tax on benefits. If the benefits are paid to non-dependants, they might be taxed, meaning your beneficiaries might receive less than they would for a similar policy outside of super..
  • Potential delays. Claiming insurance through super can take longer because the payout has to pass through the super company on its way from the insurance provider to you.
  • Trustee discretion. In certain situations, the super fund trustee decides how the benefits are distributed, which might not always match your wishes.

At the end of the day, you have to weigh up the benefits vs. drawbacks to determine which approach works best for you.

How do I find out if I have insurance through super?

There are a number of ways to find out if you’re paying for insurance through your super:

  • Log into your funds online portal or mobile app
  • Check your fund’s annual statements or PDS
  • Ring your super provider

This should give you an idea of what type of insurance you have (if any) and how much you’re paying. You can then cancel or adjust as necessary.

How much life insurance do I need?

You'll find all sorts of equations online that promise to estimate your life insurance needs. But it's not always that simple. The amount you'll need can vary significantly from person to person based on a wide variety of factors, like your income, debts, home ownership status, dependents’ needs and much more.

One method that doesn't rely on a one-size-fits-all approach is the DIME method. To find the total coverage amount, simply add up the costs of all these categories:

  • Debt. The sum total of your outstanding debts including car loans and credit cards.
  • Income. Your annual income multiplied by the number of years your family will need support.
  • Mortgage. The amount you still owe on your mortgage.
  • Education. Future expenses such as your children's education.

Add all these together and then subtract your savings, investments and any other life insurance policies to avoid overestimating your needs. However, it's always a good idea to check with a financial advisor to tailor your coverage to your specific situation.

How much does life insurance cost?

It’s tricky to pinpoint an exact figure, since the cost can vary based on your age, occupation, health status, and the amount of cover you choose. It can range from a few dollars to several hundred dollars per month, depending on your circumstances. Best to get a no-obligation quote from your super provider to get a more accurate estimate.

To learn more about various aspects of super including the contributions you can make, the tax you’ll pay and more, head on over to our superannuation guides hub.

Brad Buzzard
Brad Buzzard
Senior Money Writer

Brad brings over 25 years of experience in writing and consumer research to Mozo, using his RG146 certification for Generic Knowledge and Superannuation Brad has a knack for translating complex policies, to deliver practical guidance on financial matters. Brad has been featured in The Australian, B&T, Mumbrella, and Asia Insurance Review, and his insights have influenced the strategies of some of the world's biggest brands including McDonalds and Proctor & Gamble.