Life insurance isn’t compulsory with superannuation. 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 consider scheduling an insurance review every now and again.

Here’s what you should consider when making a choice to get insurance through super.

What level of insurance cover do you need?

If you’re under 25 and have a balance of less $6,000 in your super account, you won’t be automatically covered by insurance unless you opt-in or work in a dangerous job. If you are automatically covered, the life and total and permanent disability (TPD) cover is often low and won’t be tailored to your circumstances. You’re able to change the level of cover of your insurance in super, but the maximum amount you can be covered for within super and flexibility of cover will be less than insurance taken out outside of super.

The level of cover you may need will depend on your personal circumstances and financial situation. There are many tools and sources of information you can use. Moneysmart has a good summary on how life insurance works, while the life insurance calculator can help figure out: 

  • If you need cover 
  • How much cover you might need
Are you an Essential Super customer? Learn about the different types of insurance cover included

How do the costs and tax benefits affect you?

When you have insurance in super, the premiums are paid from your super balance, which is taxed at 15%. For many fund members, this may be a tax effective strategy as this is lower than their marginal tax rate. This also means you don’t have to pay premiums from your own pocket. It is important however to check how much you’re paying in insurance administration fees and be aware that having insurance in super will reduce your super balance.

In contrast, any life and TPD insurance premiums you pay for outside super are generally not tax deductible and you would be effectively paying for these premiums using after-tax money.

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 and then pay into your super account. 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.

What else should I consider?

If your super account doesn’t receive a contribution within a period of 16 months, you will need to indicate to your super fund that you would like to continue to be covered. If you don’t provide this confirmation, your insurance will be cancelled by the super fund as required by law.

Explore other frequently asked questions about super.

Need advice on your protection needs? A qualified financial advisor can help.

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.