Most Australians with a superannuation account have death cover (life insurance) automatically included with their fund. This cover pays a lump sum to your nominated beneficiaries when you die — and in some cases, when you are diagnosed with a terminal illness.
What Death Cover in Super Provides
Death cover pays a lump sum benefit to your beneficiaries (or your estate) when you die. The key features:
- Death benefit: Lump sum paid to nominated beneficiaries or estate
- Terminal illness benefit: Most death cover policies also pay the full sum insured if you are diagnosed with a terminal condition and have a life expectancy of 24 months or less (some policies use 12 months)
- Premium payment: Deducted directly from your super balance — no out-of-pocket cost
- Cover amount: Varies by fund, age, and whether you have unit-based or fixed-dollar cover
How Much Death Cover Do You Have?
Default death cover amounts vary significantly between funds. Common structures:
Unit-based cover: The number of units and cost per unit change by age. A 30-year-old might get $300,000 of cover for $2/week per unit. The same unit at 50 might cost $10/week for $250,000 cover.
Fixed cover: A set dollar amount (e.g., $200,000) with a premium that increases by age.
To find your current cover:
- Log in to your fund’s online portal
- Go to Insurance or Member Benefits
- Your cover amount (death + TPD) and premium deductions will be shown
You should also see the premium cost — usually shown as a monthly deduction from your super balance.
Who Receives the Payout?
The payout goes to whoever is your nominated beneficiary — not automatically to your spouse or estate. How it is handled depends on the nomination type:
| Nomination type | How trustee decides |
|---|---|
| Binding death benefit nomination (BDBN) | Trustee must follow your instruction |
| Non-binding nomination | Trustee uses your nomination as guidance but has discretion |
| No nomination | Trustee decides among dependants and legal personal representative |
Important: BDBNs expire every 3 years — they must be renewed. Non-lapsing binding nominations exist at some funds and don’t expire.
Eligible beneficiaries include: spouse/de facto partner, children (any age), financial dependants, interdependants, and your legal personal representative (estate).
Tax on Death Benefits
How the payout is taxed depends on who receives it:
| Beneficiary | Tax on lump sum |
|---|---|
| Spouse / de facto partner | Tax-free |
| Child (under 18) | Tax-free |
| Adult child (18+) | Taxable component taxed at 15% + 2% Medicare levy (or up to 30% depending on component) |
| Other dependant (financial) | Tax-free |
| Non-dependant (e.g., adult child not financially dependent) | Taxable component: up to 30% + 2% Medicare levy |
| Estate (legal personal representative) | Tax depends on who benefits from estate |
Directing the payout to your estate and then to non-dependant adult children can result in unnecessary tax — seek advice on structuring beneficiary nominations.
When Cover Is Automatically Cancelled
Under the Protecting Your Super reforms, your death cover is automatically cancelled if:
- Your account has been inactive for 16 continuous months (no contributions, rollovers, or elections)
- Your balance falls below $6,000 (in some fund rules)
To keep insurance despite inactivity, you must elect to maintain cover — this can be done online with your fund.
How to Adjust Your Death Cover
Most funds allow you to:
- Increase cover (subject to medical underwriting)
- Decrease cover (no underwriting required)
- Cancel cover entirely
Reasons to increase: mortgage, dependants, income replacement needs. Reasons to decrease: smaller debt, self-insured through other assets, or simply to reduce the premium drain on your balance.
For more: TPD Insurance in Super, Income Protection in Super, Opt Out of Super Insurance, Super Insurance Claims. For advice tailored to your situation, speak with a licensed financial adviser via MoneySmart.