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Life & Income·7 min read·

Life insurance inside super vs retail: what's the difference?

Most Australians hold some life or TPD cover inside their super without realising the details. Here's how in-super cover differs from retail policies and why it matters.

Life insurance in Australia comes in two broad flavours. Retail policies are held in your own name, paid from your own bank account, and arranged either directly or through an adviser or broker. Inside-super policies are held by your super fund's trustee on your behalf, and the premiums are deducted from your super balance. Many people have both without fully realising it.

What "inside super" actually means

When you join a super fund, the trustee often provides a default level of life cover and typically total and permanent disability (TPD) cover. In some funds, income protection is also offered. These are group policies negotiated by the fund with an insurer, which usually means lower premiums than an equivalent retail policy, but standardised terms.

Key differences to be aware of

  • Who owns the policy. Inside super, the trustee holds the policy and pays the benefit into your super account when a claim is accepted. From there it flows to you or your beneficiaries under the fund's rules and superannuation law. Retail policies pay directly to you or your nominated beneficiary.
  • Definitions. TPD "own occupation" vs "any occupation" definitions can differ between in-super and retail. Definitions that used to be available inside super have narrowed over the years in some funds.
  • Tax treatment. Premiums paid from super are, in effect, paid from pre-tax dollars, but benefits may be taxed differently depending on who receives them and their relationship to you. Retail policies are usually paid from after-tax money and the death benefit is generally tax-free to the beneficiary. Individual circumstances vary; check with a licensed adviser.
  • Continuity. If you leave a fund, roll it over, or stop making contributions, your in-super cover can be cancelled, sometimes without much notice. Retail policies stay in force as long as premiums are paid.
Superannuation law and fund rules change over time. Before making decisions based on the treatment of in-super cover, confirm the current position with your fund or a licensed financial adviser.

Common ways this goes wrong

  • Overlapping cover. Someone holds default cover inside two or three super funds from previous jobs, plus a retail policy, paying premiums from all of them for cover they don't need.
  • Under-insurance without knowing. Default in-super cover is often modest and hasn't been adjusted for a mortgage, children, or a partner's income.
  • Cancelled cover. Cover inside inactive super accounts can be cancelled under legislation aimed at protecting balances from erosion. If you were relying on it, that's a problem to discover early rather than at claim time.

What to do at your next review

  • List every super fund you have and, for each, the current life, TPD and income protection cover, plus the definitions.
  • Add any retail policies to the same list.
  • Look at the total across all of them against what you and your household would actually need: mortgage, dependants, income replacement horizon.
  • Talk to a licensed adviser before consolidating or cancelling any cover. Cancelling in-super cover can be easy; getting it back if your health has changed is not.

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