Most Australians with an industry or retail super fund have some form of default insurance cover — typically life (death) insurance and/or total and permanent disability (TPD) insurance — without ever applying for it. This cover is a valuable safety net, but it comes with fees that reduce your super balance, and it is not always the right fit for everyone’s circumstances.
Understanding what cover you have, how much it costs, and whether to keep it is an important part of managing your super.
Key Takeaways
- Most industry and retail super fund members automatically hold life, TPD and income protection insurance
- Cover is funded from your super balance — premiums reduce your account balance each year
- Default cover is cancelled if your account is inactive for 16 continuous months under Protecting Your Super legislation
- ‘Any occupation’ TPD is the standard in default cover — ‘own occupation’ TPD requires an upgrade
- Check your cover amount, premium, and definition before cancelling — cover that lapses may not be reinstatable without a health assessment
The Three Types of Super Insurance
1. Life Insurance (Death Cover)
Life insurance through super pays a lump sum to your nominated beneficiaries (via your binding death benefit nomination) if you die. Many funds also pay the cover if you are diagnosed with a terminal medical condition (typically a medical certificate stating you are likely to die within 24 months).
Why it matters: The cover amount can supplement your super balance to provide income replacement for a surviving spouse, pay off a mortgage, or fund children’s education.
Default cover: Most industry funds provide a default cover amount — typically several hundred thousand dollars for younger members — without you needing to apply. The amount often decreases as you age (because the need for life cover is generally lower as children grow up and mortgages reduce).
2. Total and Permanent Disability (TPD) Insurance
TPD insurance pays a lump sum if you become totally and permanently disabled and are unlikely to ever work again. The definition of “total and permanent disability” varies between funds:
- Own occupation TPD: Pays if you cannot return to work in your specific occupation — a more favourable definition for claimants
- Any occupation TPD: Pays only if you cannot work in any occupation for which you are reasonably suited by education, training, or experience — a stricter test
Note: Many industry super funds provide “any occupation” TPD for default cover. “Own occupation” cover is more commonly available via retail funds or additional cover applications. Check your fund’s Product Disclosure Statement (PDS) for the exact definition.
3. Income Protection Insurance
Income protection insurance (sometimes called salary continuance) pays a percentage of your income (typically 75%) for a defined period if you are temporarily unable to work due to illness or injury.
Key features of income protection in super:
- Waiting period: typically 30, 60, or 90 days before payments begin
- Benefit period: often 2 years, 5 years, or to age 65
- Some funds offer income protection as default cover; others offer it as optional extra
Premium considerations: Income protection premiums inside super have been restricted — since 2020, default income protection inside super cannot provide cover for more than 2 years for a single condition (the “2-year benefit period cap” for default cover). Longer benefit periods may require applying for additional cover.
How Default Super Insurance Works
When you join a super fund (or when your employer’s SG contributions are first received), the fund typically enrolls you in default insurance automatically — without you needing to apply or undergo a medical examination. This is called “automatic acceptance” or “auto-accept cover.”
The premium is deducted from your super balance (not from your pay) each month. You can view your current cover type, cover amount, and premium in your fund’s member portal or annual statement.
Note: Some funds only provide default insurance cover if you are above a minimum age (e.g. 25) or have a minimum super balance (e.g. $6,000). Check your fund’s rules.
Protecting Your Super — The Inactive Account Rules
Under the Protecting Your Super legislation (from July 2019), default insurance is cancelled for members with accounts that have been inactive for 16 months — meaning no contributions have been received in 16 months.
This affects people who:
- Change jobs and stop contributing to an old fund (the new employer uses a different fund)
- Take extended leave (unpaid parental leave, career break)
- Are young workers with small balances who take breaks between employment
How to prevent cancellation:
- Make a small voluntary contribution to the inactive account to “reactivate” it
- Consolidate the old account into your active fund (but check whether this causes insurance loss — see below)
- Opt in to retaining insurance in writing (most funds allow this even for inactive accounts)
Insurance Loss When Consolidating Super
This is a critical risk when rolling over super between funds. When you close a super account (by rolling it to another fund), any insurance attached to that account is permanently cancelled.
If you then try to apply for equivalent insurance at your new fund, you will typically need to go through medical underwriting — and pre-existing health conditions may result in exclusions, premium loadings, or declined applications.
Best practice before consolidating:
- Check what insurance you hold at each fund (type, amount, premium)
- Check what insurance you hold at your preferred fund
- If the fund you’re closing has better cover (e.g. own-occupation TPD, lower premiums, higher amounts), consider whether to keep it — even if it means paying fees on a small balance
- If you proceed with the rollover, consider applying for additional cover at the receiving fund before closing the old account, while you are still insured elsewhere
Opting Out of Super Insurance
You can opt out of default super insurance at any time — reducing the insurance premium and leaving more money to accumulate in your super.
Reasons to opt out:
- You have adequate life and TPD cover through a separate policy outside super
- You are young and single with no dependants and significant personal insurance
- You are retired or near retirement with no income to protect and dependants no longer relying on your income
- The premiums are significantly eroding your balance relative to the cover provided
Reasons to keep it:
- You have dependants who would need financial support if you died or were disabled
- You have a mortgage or significant debt
- You would not qualify for cover at the same price outside super due to health history
- The premiums are relatively small relative to your balance
How to opt out: Log in to your fund’s member portal, or contact your fund directly. You can generally opt out online with immediate effect.
Cost of Super Insurance
Insurance premiums inside super vary significantly between funds and depend on age, occupation, and cover amount. Typical annual costs (indicative only — check your fund’s PDS for actual premiums):
| Cover Type | Typical Annual Premium (Age 35) |
|---|---|
| Life/death cover — $500,000 | $200–$600/year |
| TPD — $300,000 | $200–$700/year |
| Income protection — 75% of $80k salary, 2yr benefit | $400–$1,200/year |
Premiums increase with age and for higher-risk occupations. Blue-collar workers often pay higher TPD premiums than white-collar workers.
Tax on Super Insurance Premiums
Life and TPD premiums: Paid from your super account (pre-tax money inside super). You do not get a direct tax deduction, but the premiums are funded from your super balance.
Income protection premiums paid inside super: The fund can claim a deduction for these premiums, which is part of why income protection inside super can be cost-effective. However, income protection benefits paid out through super are taxed differently than benefits from a personally-owned policy.
Income protection benefits (inside super): Paid to you as super income stream — may be taxed at your marginal rate (less a 15% offset) rather than being tax-free if you held a personal policy. This is an important distinction for those with income protection inside super — the benefit is taxable, unlike a personally-held income protection policy that provides the benefit tax-free.
Frequently Asked Questions
How do I know what insurance I have in super? Log in to your fund’s online portal, or check your most recent annual statement. It shows the type, amount, and monthly premium for each insurance cover. If you are unsure, call your fund.
Do I need super insurance if I already have life insurance outside super? It depends on the total cover level you need. Many Australians hold some insurance inside super (for cost efficiency) and additional cover outside super for amounts that exceed what the fund provides. Review your total cover needs — a financial adviser or insurance adviser can help assess the right level.
Does super insurance cover me overseas? Most policies cover you for claims arising anywhere in the world, but you should check your fund’s PDS — some funds have restrictions on income protection claims for members working overseas.
Can I increase my default super insurance cover without medical underwriting? Some funds offer “life events cover” — additional insurance triggered by events like marriage, the birth of a child, or taking out a mortgage — without full medical underwriting. Check your fund’s PDS for details.
For advice on your personal insurance needs and how super insurance fits your situation, speak with a licensed financial adviser through MoneySmart. Related reading: Insurance in Super, Death Benefits — Who Gets Your Super When You Die?, Binding Death Benefit Nomination Explained.