Disclaimer: You cannot compare superannuation or life insurance through superannuation on our service. However, you can compare standalone life insurance policies.
There are two choices available to Australians when it comes to how they take out life insurance: from an insurance provider or through their superannuation fund. There are advantages and disadvantages to both types of cover, so how do you know which one is right for you? We’ll take you through the pros and cons of taking up life insurance through your superannuation fund to help you decide whether it suits you best.
Types of insurance available through your super fund
The insurance options available to you as a super fund member will depend on your fund. However, these are some typical insurance products offered through superannuation:
- Term life insurance. Sometimes called death cover, a term life insurance policy pays a lump sum to your nominated beneficiary if you pass away or are diagnosed with a terminal illness.
- TPD insurance. Total and permanent disability (TPD) insurance pays a lump sum benefit if you’re seriously disabled and unlikely to work again. Depending on your policy, TPD covers you for your own or any occupation; this means you might not receive a benefit if you’re able to work again in a different occupation. Policies that cover you for your own occupation are rarely available through your super fund.
- Income protection cover. This is a type of life insurance, that insures part of your income if you’re unable to work due to sickness or injury. This life insurance product typically pays out a monthly benefit equal to a percentage of your income prior to being disabled
This is only a guide to the types of insurance typically available through superannuation. For the full details of your fund’s policies and their inclusions and exclusions, refer to the relevant Product Disclosure Statement (PDS). To decide which product best meets your insurance needs, consider getting financial advice from a qualified financial adviser.
Advantages of life insurance through superannuation
There are a few reasons why you might want to consider taking out life insurance through your super fund.
- Easier coverage. Taking out life insurance through your superannuation fund is a more straightforward process than going through a life insurance company. In fact, many funds automatically provide you with a life insurance policy when you sign up. While life insurance companies may require you to complete a health check before they insure you, this is not often a requirement for the automatic cover available through your super fund. If you’re under 25 and not working a dangerous job or have a super balance under $6,000, you won’t be automatically covered, although you might be able to sign up by contacting your super fund.1
- Cheaper premiums. You’ll usually pay less for a life insurance policy through your superannuation as they buy their policies in bulk. While your premiums may take away from your super balance, if you’re saving for retirement and investing your savings independently, you might still save money in the long term.
- Tax effective payments. Because your employer’s super contributions are taxed at a flat 15%, it’s possible that life insurance through your super fund will be more tax effective if your marginal tax rate is above 15%.2
Disadvantages of life insurance through superannuation
While there are benefits to taking out life insurance through your super fund, there are also a few disadvantages worth considering.
- Lower level of cover. Life insurance through superannuation typically has a lower benefit amount. Depending on the amount of cover you need, it’s quite easy to be underinsured with a superannuation life insurance policy. You can use our free life insurance calculator to get an idea of how much cover you might need and compare that to the cover offered by your super fund.
- Less flexibility. With a policy from a specialist life insurance provider, you have greater control over how your cover is structured and access to optional extras that you can add to your policy to expand your coverage. This could include child cover, needlestick cover for medical professionals or critical illness cover.
- Insurance claims may take longer. When you make a claim through your super fund you have to wait until the insurer finalised their assessment and send the insurance payout into your super account. Once the money is paid into your super account, the trustee will need to decide when and how the proceeds from the insurance payout will be distributed to your beneficiaries.
- Reduces your retirement savings. Because your life insurance premiums are taken from your super account when you’re insured through superannuation, it will reduce the amount you have saved for retirement. Subsequently, you’ll also be lowering the amount your super fund can invest on your behalf, reducing the compounding returns your super fund provides. If, for any reason, you’re no longer making super contributions, your account balance could actually fall.
Is life insurance through super tax deductible?
No, life insurance premiums paid through your super fund are not tax deductible.
Which type of insurance is right for you?
The right type of cover for you will ultimately come down to your personal circumstances and priorities. While we can’t make this decision for you, we can speak to the importance of comparison. By comparing a number of options side-by-side, you can make a more informed decision on the best life insurance policy for you. With our life insurance calculator, you can get an idea of how much cover you might need, and our free comparison tool can help you compare policies from our panel of trusted life insurance providers.