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Most super funds automatically give members aged 25 and over a set amount of life cover and TPD insurance, and some add income protection. The premiums come out of your super balance, not your take-home pay, and you usually get the default cover without any medical checks.
That makes it a useful base, but it is rarely the whole answer. Default amounts are often well below what a household with a mortgage and children would need, cover can switch off if your account goes quiet, and every premium reduces what you retire with. The job is to check what you have, then decide whether to keep it, top it up or replace it.
By Better Rate Mate Editorial Team ยท Last reviewed
Moneysmart describes three types offered by most funds other than self-managed funds: life cover (also called death cover), which pays a lump sum or income stream to your beneficiaries when you die or are terminally ill; TPD insurance, which pays if you become seriously disabled and unlikely to work again; and income protection (sometimes called salary continuance), which pays a regular income for a set time.
Super can't hold every kind of cover. Since 1 July 2014, new insurance in super must match a condition of release: death, a terminal medical condition, permanent incapacity or temporary incapacity. That rules out new trauma cover and own-occupation TPD inside super. Moneysmart adds that TPD cover in super usually ends at 65 and life cover at 70.
Two sets of reforms decide whether you have default cover at all. Both aim to stop premiums eating the balances of people who may not need the cover, so you may need to act to keep it.
| Rule | In force from | What it does | How to keep or get cover |
|---|---|---|---|
| Inactive accounts (Protecting Your Super) | 1 July 2019 | Funds must cancel insurance on accounts with no contributions for at least 16 months | Tell the fund you want to keep it, or add money to the account. The fund must contact you before cover ends |
| Members under 25 (Putting Members' Interests First) | 1 April 2020 | Cover doesn't start automatically for new members under 25 | Ask the fund to opt you in |
| Low balances (Putting Members' Interests First) | 1 April 2020 | Cover doesn't start automatically while your balance is under $6,000 | Ask the fund to opt you in. If your balance later falls below $6,000, you usually keep existing cover |
| Dangerous occupations | 1 April 2020 | Funds may still give automatic cover to members in dangerous jobs | You can cancel it if you don't want it |
Moneysmart sets out the trade-off plainly. The advantages are real, and so are the gaps.
| Advantages | Disadvantages |
|---|---|
| Can be cheaper, because funds buy cover in bulk | Default amounts may be lower than you need, and eligibility rules apply |
| Premiums come from super, not your take-home pay | Premiums reduce your retirement savings, which matters more close to retirement |
| Default cover usually needs no medical checks, which helps people in high-risk jobs or with health conditions | Cover can end if the account is inactive, the balance runs out, you change fund or you reach an age limit |
| You can usually apply to increase cover | Increases usually need health questions and possibly medical checks |
| Can be tax-effective for some people | No own-occupation TPD or trauma cover, and the trustee decides who gets death benefits without a binding nomination |
Insurance paid on your death goes into your super account and is paid out as a super death benefit, alongside your balance. With a valid binding nomination, the trustee pays the people you named. With a non-binding nomination or none at all, the trustee decides which dependants to pay, or pays your estate for distribution under your will.
Superannuation law limits who can receive the money directly: your spouse or de facto partner, your children of any age, and anyone in an interdependency relationship with you. To leave it to someone else, you nominate your legal personal representative so it passes through your will.
The tax depends on whether the person receiving it is your dependant under tax law, which is a narrower group than under super law. Spouses, former spouses, children under 18, people in an interdependency relationship and anyone financially dependent on you count. An adult child who wasn't financially dependent on you does not.
A lump sum paid to a tax dependant is tax-free. A lump sum paid to a non-dependant has its tax-free component untaxed, but its taxable component is taxed at up to 15% plus the Medicare levy on the taxed element and up to 30% plus the Medicare levy on the untaxed element. Insurance proceeds paid through super can increase the untaxed element, which is why a large life insurance payout through super can lose a noticeable share to tax when it goes to adult children. A policy held outside super and paid directly to a nominated beneficiary doesn't go through these super rules.
Log in to your fund's website or app, or check your annual statement and the fund's insurance guide or PDS. You're looking for five things.
It can be. Premiums may be cheaper, they don't come from your take-home pay, and default cover usually needs no medical checks. The trade-offs are that premiums reduce your retirement savings, default amounts are often too low, and cover can end if the account goes inactive.
Most super funds, apart from self-managed funds, automatically give members aged 25 and over life cover and TPD insurance once their balance reaches $6,000, and some add income protection. Members under 25 or with smaller balances must opt in.
Log in to your fund's website or app, or check your annual statement. It will show the type of cover, the amount, the premium and when the cover ends. You can also call the fund.
Cover generally continues while premiums can be paid from your balance, but by law the fund must cancel it if the account receives no contributions for 16 months, unless you tell the fund you want to keep it. Check whether your fund has its own balance rules too.
A lump sum paid to a dependant under tax law, such as a spouse or a child under 18, is tax-free. A lump sum paid to a non-dependant, such as an independent adult child, has its taxable component taxed at up to 15% or 30% plus the Medicare levy.
Super funds set their own default cover scales, age limits and occupation ratings within these rules. Your fund's insurance guide is the final word on your cover, and a registered tax agent or financial adviser can help with death benefit planning.
Life, TPD and trauma cover pay lump sums. Income protection is the cover that pays a monthly income while you recover.
