Life Insurance Through Super: The Pros and Cons

Most Australians have default life insurance (and often TPD) through their superannuation fund. It's automatic, it's convenient, and for many people it's the only life insurance they have. But it comes with significant trade-offs.

The advantages

• •No underwriting (usually): Default cover is issued without medical questions for new employees — making it accessible even if you have health conditions.
• •Premium efficiency: Premiums are paid from pre-tax super contributions, effectively making them more tax-efficient than paying post-tax.
• •Automatic: No action required — you likely already have some cover.

The disadvantages

• •Usually inadequate: Default cover is typically $200k–$400k. For a family with a mortgage, this is well below the $1M–$2M+ typically needed.
• •Erodes super balance: Premiums come from your retirement savings — especially costly for younger members who lose the compound growth on those withdrawals.
• •Condition of release issue: A life benefit through super must be paid to your super trustee first, then to beneficiaries — adding time and complexity compared to retail policies.
• •Can lapse: If super is inactive (no contributions for 16 months), default cover cancels. This caught many people out during COVID career breaks.