Life Insurance Outside Of Super: Pros And Cons

If you are in an APRA regulated superannuation fund and 25 or over, you will automatically have a level of life insurance provided by your superannuation fund. Depending on your age, the cover amount will vary. For example, Australia’s largest industry fund—AustralianSuper—offers default cover of $178,000 for a blue collar 30-year-old worker at a weekly cost of $1.67 (from lower-taxed dollars in super). That level drops down to $37,000 at 55 at a cost of $2.13 a week.

MediaSuper offers cover of $193,000 for 30- to 34-year-olds (plus TPD cover of $50,000) at a weekly cost of $1.82 a week. Some funds automatically include total and permanent disability (TPD) insurance in their offerings and some funds provide it separately so you can decide whether you want it or not.

“You can have policies that are written as almost the exact same as outside [of super] but actually paid for through super …you can get decent quality cover through super now,” director, financial planner and SMSF specialist adviser at SONAS Wealth Liam Shorte explains.

However, he also adds that “the default cover is still very low, and you have to actually apply for more cover [in super].”

You can get a higher level of life insurance inside of super relatively easily with many funds offering coverage well into the millions. Your superannuation fund will ask for more details about your health, and you may be required to provide medical tests, but the premiums will be coming out of your superannuation dollars, which is taxed at 15% rather than your individual tax rate, which makes it cost effective.

Superannuation funds are often able to provide better premiums for members as well because they can negotiate contracts in bulk with insurance providers. Just make sure you read the fine print for what you are covered.

“What we have found is outside of super especially, people are just struggling with their budgets [and] they just can’t afford to run insurance. So, what we’re basically trying to do is put as much [insurance] through super as possible and get them to salary sacrifice for it, so at least it’s coming through at a more cost-effective price for them,” Shorte says.

Related: Guide To Salary Sacrificing Into Super

Taking out life insurance outside of superannuation is not all that different to taking it out within superannuation. Most major life insurance providers offer maximum coverage into the millions depending on your situation. Some policies may have age limits on when you can take it them out by, i.e. you won’t be able to purchase certain policies over age 75, but many policies also offer bells and whistles like advanced payment benefits for funerals.

The Australian Financial Complaints Authority (AFCA) reported that while the top issue in complaints to AFCA in 2022-23 was delay in insurance claim handling, it has also been a significant issue in superannuation.

Super complaints rose 32% overall last financial year, but within this was a 136% rise in complaints about claim delays, including payments in life insurance and total and permanent disability insurance claims.

“We urge fund trustees to closely track the progress of claims and to review outcomes for members,” AFCA’s chief ombudsman and chief executive officer David Locke said when announcing the financial year results.

“Access to this money is vital for people who have lost a loved one or are unable to work. Unnecessary delays and poor communication are distressing.”

You can purchase most life insurance policies directly. Just go to their website, select get a quote and follow the steps. Most also offer numbers to call through on as well.

You can use a broker if you wish. You could use the National Insurance Brokers Association (NIBA) Need a broker website to find one near you. But brokers can receive a percentage commission of your premiums which means you could be paying higher premiums as a result.