Insurance Inside Super: What’s Covered and What’s Not

Quick Look

Focus – Understand the types of insurance provided through super, their limitations, and when external cover might be better

Key Takeaways:

Most super funds include life, TPD and income protection cover—but it’s often basic or conditional
Cover through super is usually cheaper and tax-effective, but not always enough
There is a cost for the insurance provided within super funds which will significantly reduce its value at retirement
Reading Time: ≈ 6 minutes

Introduction

Many Australians don’t realise they already have insurance—tucked inside their super fund. But is it enough?

Insurance through super can be a cost-effective safety net, offering peace of mind if something unexpected happens. However, there are trade-offs: the cover may be limited, conditional, or slow to pay out.

In this article, we break down what’s included, where the gaps are, and when it might make sense to seek cover outside super.

Context & Problem

Most super funds automatically include insurance—often without you needing to ask. But this convenience can lead people to assume they’re fully covered, when in reality they may not be.

Here’s why this matters:

If you become seriously ill, injured or pass away unexpectedly, insurance helps protect your family’s financial future
Relying only on default cover could leave you underinsured—especially if you have a mortgage, kids, or self-employment income

The first step is understanding what you’re already paying for inside super—and whether it suits your life stage and needs.

Strategy & How To

1. Types of Insurance in Super

Most super funds offer three core types of insurance:

Life Insurance (Death Cover)

Pays a lump sum to your beneficiaries if you die.
Helps loved ones pay off debts, cover funeral costs, or replace your income
Cover amounts typically range from $100,000 to $500,000
Some funds also pay out if you’re diagnosed with a terminal illness

Total and Permanent Disability (TPD) Cover

Pays a lump sum if you become permanently disabled and can’t return to work.

Definitions for when payments are made vary:
“Any occupation” is stricter—insurance payments continue if you can’t do any job you’re suited to which means if you can recommence work in a lower paid position then the payments stop
“Own occupation” is more generous as insurance payments continue if you cannot do your normal job-but this is often not provided by super-based cover

Income Protection (IP) Cover

Replaces part of your income (usually up to75%) if you can’t work due to illness or injury.
Paid monthly after a waiting period (30 to 90 days is common)
Benefit period cannot be for more than 2 years
May be opt-in and therefore not automatic

2. Advantages of Insurance Through Super

Cheaper premiums—because of the grouping nature and lower quality cover
Cash flow neutral-paid from your super balance, not your take-home pay
Group cover—no health check required if you join at younger ages
Tax-effective—premiums for death and TPD cover are generally tax-deductible to the fund

3. Limitations and Gaps

Cover amounts may be too low—especially for families with young children or large mortgages
Premiums reduce your retirement savings over time
Policy definitions can be restrictive—especially for TPD and IP
Delays in claims—pay outs can be slower due to trustee oversight

Cover may end automatically if:

Your account is inactive for 16+ months
You’re under 25 and haven’t opted in
Your balance is under $6,000

Important: Always read your fund’s Product Disclosure Statement (PDS) to understand what is and isn’t covered

4. When to Consider Insurance Outside Super

You might need stand alone cover if you:

Have dependants and want to fully replace your income
Work in a specialist profession and want “own occupation” TPD
Need a longer income protection benefit (e.g. up to age 65)
Want faster claims or more flexible policy options
Are self-employed and need business-specific cover

Outside cover can offer more customisation—but will cost more, and premiums aren’t always tax-deductible.

Common Questions & Misconceptions

I already have insurance in super — that ’ s enough, right?

Maybe—but default cover is designed as a safety net, not full protection. It often doesn’t cover your full income or liabilities

I didn’t ask for insurance — am I paying for it?

Likely, yes. Many funds include automatic premiums. You can cancel it but check the impact first (especially if you lose eligibility later).

Can I claim both super and private insurance

Yes—if you hold policies both inside and outside super, and both apply, you may be able to claim from each. However, many policies will only pay the amount over what other policies are paying

Does insurance in super expire?

Yes—it may lapse if your account is inactive, too small, or if you haven’t opted in under age 25.

Conclusion

Insurance inside super can be a valuable starting point—offering low-cost protection when you need it most. But for many Australians, it’s just the beginning.

As your life and responsibilities grow, so should your insurance plan. Understanding what your super fund covers—and where the gaps are—puts you in a stronger position to protect your family and future.

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Disclosure: General information only. Consider your objectives, financial situation and needs, and seek professional advice before acting.

Review & Fact Check

1. Fact References

- ATO–Insurance through super:(www.ato.gov.au)
- ASIC Money smart–Insurance in super explained
- Super fund Product Disclosure Statements–policy definitions and cover thresholds

2. Unverified or Inconclusive Items

Premium levels and default cover amounts vary by fund—examples used are typical but not universal.

3. Time Sensitivity

Super insurance rules and opt-in conditions may change—particularly for under-25sand low-balance accounts

4. Bias Assessment

Educational and balanced—compares both in-super and standalone insurance options fairly