Superannuation Life Insurance

In the market for life insurance? Compare superannuation policies and standalone options through Savvy.

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, updated on July 19th, 2023       

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Life Insurance

We’ve partnered with Compare Club to bring you a range of life insurance policies to help you compare them side by side.

If you’re considering taking out life insurance to help provide you and your loved ones with an important financial safety net, you may be tossing up between whether to purchase through your superannuation fund or direct with an insurer. You can find out more about each through Savvy.

By comparing deals with us, you'll be able to consider the prices and benefits of different policies side-by-side. Getting free quotes through us from a panel of some of Australia’s leading insurers allows you to get real-time estimates on prices up against others on the market. Start the process of comparing policies through Savvy today.

How does life insurance within your superannuation work?

Many superannuation funds offer either automatic  life insurance cover or provide it as an optional extra. While standalone policies require paying monthly or annual premiums from your cashflow, life insurance policies within your super fund are generally financed through payments from your regular super contributions.

If you want to buy a life insurance policy, it's worth checking with your super fund to see if you already have one active. Although life insurance is often provided automatically through  your superannuation fund, it’s still worth comparing standalone policies through Savvy to make sure you're aware of all your options. 

Most super funds provide the following types of life insurance:

  • Life cover: if you were to pass away or be diagnosed with a terminal illness, the beneficiaries or dependents you've designated may either receive a lump sum payout or an ongoing source of income from your life insurance policy, depending on your fund’s terms and conditions. It's also known as death cover for this very reason.
  • Income protection insurance: income protection is cover which pays a portion of your salary if you’re unable to work for an extended period due to injury or sickness. You can typically choose the period over which you’re covered under this type of policy, ranging up to five years or the age of 65 ( this depends on the terms of your insurance policy).
  • Total and permanent disability (TPD) insurance: this sort of insurance, also known as permanent disablement cover, can pay you a lump sum if you become permanently disabled due to an injury or illness. It can help protect you financially if you are unable to work.

TPD insurance is split into two types of cover: own occupation and any occupation. Own occupation applies if your disability prevents you from working in your current position, but not necessary from other jobs relevant to your experience, education or training. Any occupation applies if your disability prevents you from any future work relevant to your experience, education or training. Superfunds typically only offer any occupation cover when it comes to TPD insurance.

In most cases, super accounts with balances under $6,000, or those which haven’t been topped up in at least 16 months, won't be eligible for life insurance cover. Most super funds also require those under 25 to opt in if they want life insurance coverage.

How does superannuation life insurance differ from policies outside of superannuation?

They may not appear that different, but there are quite a few differences between purchasing life insurance directly from an insurer and opting for cover provided through your superannuation. Some of these include:

Life insurance Superannuation life insurance
As part of the underwriting process, you may need to undergo a medical test to check your BMI, cholesterol levels and general health (though this isn’t always the case).
You won’t have to sit a medical test to be covered, with coverage guaranteed so long as you meet the necessary eligibility criteria.
The types of policies you get to choose from are wider, with life cover, TPD (both own and any occupation), trauma and income protection insurance being the main options.
Life insurance within your super fund will be limited to life cover, TPD (any occupation only) and income protection insurance, with no separate trauma cover option available.
You’re able to choose coverage from as little as $100,000 with no upper limit for life cover and change it over the life of your policy.
The maximum amount super funds usually cover you for under a life cover policy is typically lower, often under $500,000.
You’re able to choose coverage between $100,000 and $2 million and change it over the life of your policy.
The maximum amount super funds usually cover you for is typically lower, sometimes under $500,000.
Premiums are due monthly or annually and can be directly debited from your bank account.
Premiums are deducted from your super balance. This has the effect of reducing your super balance when you retire.
You can purchase a policy directly through a life insurance company or an insurance broker. You can apply online 24/7 or over the phone through your insurance company.
In most cases, your super fund will provide you with automatic coverage or allow you to opt in if you meet the eligibility requirements.

Types of life insurance

Why compare life insurance through Savvy?

Pros and cons of superannuation life insurance

PROS

Cheaper premiums

Life insurance purchased by a super fund is typically bought in bulk at a discount price. This means the cost of your premium is generally lower than what you’d pay with a standalone policy.

Convenient and easier to manage

The premiums for this insurance are automatically deducted from your superannuation fund. As such, you likely won’t need to worry about manually going in and making your life insurance payments.

Few medical check-ups

As a rule, individual medical exams aren't necessary when getting life insurance through your super fund. If you have a risky occupation or a pre-existing medical condition, you may have trouble obtaining life insurance elsewhere, so superannuation cover may give you an additional option.

CONS

Limited coverage

Typically, the amount of automatic coverage you can receive via your super policy will be less than the maximum available through a private plan. The insurance policy offered through your superannuation fund is generic and may come with exclusions and qualifying criteria.

Reduces your retirement nest egg

If there’s money regularly being deducted from your balance, it’s going to leave less in the kitty to invest and earn a return on. This can be a key disadvantage of opting in for a policy, as you may have less money in your super account to use when you retire. This needs to be weighed up against paying for your insurance with non-superannuation money.

Longer claims process

When you get life insurance via your superannuation, the proceeds are paid into your super account first, rather than directly to your beneficiaries. It may take time for superannuation trustees to determine if the release condition has been satisfied and who the proper beneficiaries are (if you’ve failed to specify your beneficiaries).

Lacking flexibility

Your coverage may lapse if you switch super funds, cease making payments or let your account go dormant. As such, the risk of finding yourself unprotected can be greater than when you purchase a standalone policy.

No trauma insurance option

One of the disadvantages of superannuation life insurance policies is that it doesn’t come with trauma insurance, which can cover you if you’re diagnosed with a critical illness such as cancer.

Your questions about superannuation life insurance answered

Can I have more than one life insurance policy?

Yes – you can have both life insurance inside and outside your super fund, purchased directly or through a broker. This can be handy if you want some of the benefits that usually don’t come with superannuation-related policies, such as trauma insurance.

How do I claim on my superannuation life insurance policy?

If you need to file a claim on your life insurance policy, you or your beneficiaries will need to provide your super fund with any paperwork relating to the incident, such as medical reports, a death certificate or doctor’s notes.

If your claim is approved, the payout will be made to your nominated beneficiary. It can take up to ten working days for claims to be processed.

If your claim is rejected, the superannuation trustee may review such a decision. You also have the option of getting legal advice and subsequently investigating the decision.

Do superannuation life insurance policies cover suicide?

Like standalone life insurance policies, your super fund life insurance may have an exclusion that prohibits payouts for suicide-related deaths or injuries. However, some may offer cover for suicide if it occurs outside the first 13 months of holding your life insurance policy.

Can I take out a family life insurance policy through my super fund?

No – super life insurance policies won’t provide cover for children, unlike policies purchased directly from a life insurance provider. If your child needs coverage, they’ll have to meet the eligibility criteria or purchase a policy which isn’t linked to your super fund.

Are there age limits on these types of policies?

If you aren’t over 60 or 65, you can generally take out your first life insurance policy through your super fund (provided you satisfy your fund’s eligibility criteria). This can cover you well into your 90s in the case of life cover. However, the age limits on other types of policies are more varied. For instance, you can generally buy TPD and income protection insurance if you’re under 60, but both only last until you’re 65 or 70.

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Disclaimer:

Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.

Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.

For any further information on the variety of insurers compared by Compare Club or how their business works, you can read their Financial Services Guide.