The question of insuring within or outside a super fund, or a mix of both, is one with no right or wrong answer. It will depend on your personal needs, and even when you make your choice, this shouldn’t be a set-and-forget decision.

With each life stage and major event – marriage, childbirth, mortgage, pay rise – comes different responsibilities, so you should schedule an insurance review every now and again. Here’s what you should consider when making your choice.

What level of cover do you need?

Automatic, and typically low, levels of life or life and TPD cover within a super fund can be fine for a young person starting their first job. But for somebody at another life stage – with a partner, children and a mortgage, for instance – it may be different.

Insurers who provide cover within super can have caps on their levels of personal insurance cover, so you need to know about these levels of cover and any limits. Outside super, the levels of cover can be more flexible. This will also depend on your age and your health. 

Do you need to customise your policy?

Superannuation law restricts policy definitions and the level of customisation that can occur to a policy, potentially making insurance policies within a super fund less flexible.

If you are defaulted into insurance cover when you join your fund, it’s likely you won’t be consulted about the levels of cover you get – and this cover may or may not suit your needs. Whereas if you get insurance outside super, it will be tailored for you, which may be more suitable for your needs. 

Keep in mind if you stop contributing to your super fund, coverage may stop automatically. It could also stop at an earlier age than if you get it outside of super. 

Would you be happy to have medical check-ups?

If you have insurance through super, you’re not usually required to have regular medical check-ups because funds spread risk among their members.

However if you have insurance outside of super, your insurance provider will assess you on an individual basis, considering your age, health, lifestyle and job and will tailor your cover. This could mean higher premiums for some, but could also allow greater flexibility of cover for others. 

How do the costs and tax benefits affect you?

For many fund members, it’s hard to beat the tax effectiveness of personal insurance paid within a super fund. The premiums are usually paid from compulsory super payments made by your employer, or through other contributions such as salary sacrifice.

That means you don’t have to pay premiums from your own pocket, but it’s also important to check how much you’re paying in insurance administration fees, because this could eat away at your final super balance.

In contrast, life and TPD insurance premiums you pay for cover outside super are generally not tax deductible. You effectively pay them from after-tax money, although premiums paid for income protection insurance are often tax deductible. 

How quickly do you need a pay out?

It could take longer to receive a payment if you or a beneficiary make a claim because the insurer needs to pay the super fund, who then pay you. You may want to use ASIC’s Life Insurance claims comparison tool to see how different life insurance providers accept and handle claims and how soon they pay them out.  


Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.