How does life insurance interact with my will and estate planning?

Life cover outside super with a nominated beneficiary bypasses your estate; cover paid to your estate flows through your will; cover inside super is governed by superannuation law, not your will. The destination of the proceeds depends on the ownership structure and the beneficiary nomination.

The panel is AIA, Zurich, TAL, OnePath, ClearView, NEOS, Encompass, Acenda, and Futura. All 9 insurers issue Life Cover both inside and outside super. The interaction with estate planning differs sharply between those two ownership structures.

Life Cover held outside super

Where a retail policy is held in the life insured's own name and a beneficiary is validly nominated, the insurer pays the proceeds directly to the nominated beneficiary on death. The benefit does not pass through the estate, is not delayed by probate, and is not subject to creditor claims against the estate. Beneficiaries typically receive funds within weeks of submitting the claim documents.

If no beneficiary is nominated, or if the policy nominates 'the estate' or 'legal personal representative', the proceeds become part of the estate and are distributed according to the will, after grant of probate. This is slower and exposes the proceeds to estate creditors.

Examples from panel PDSs:

• TAL Accelerated Protection PDS (12 December 2024): If the Policy is structured outside superannuation and you have validly nominated one or more beneficiaries to receive a benefit under Life Insurance, we will pay the benefit in accordance with your nomination. Otherwise, all payments made by us under the Policy will be made to you, or if you have died, to your legal personal representative or a person we are permitted to pay under any relevant law.
• AIA Priority Protection PDS (Version 32, 9 November 2025): outside super, the beneficiary is per the policy schedule; otherwise paid to the legal personal representative.
• Zurich Wealth Protection PDS (1 November 2025): standard binding and non-binding nomination options apply to non-super cover.

Life Cover held inside super

Where the policy is owned by the trustee of a super fund, the proceeds form part of the member's super death benefit and are governed by superannuation law (Superannuation Industry (Supervision) Act 1993, the trust deed, and the SIS Regulations), not by the will. The fund's trustee distributes the death benefit:

• According to a valid binding death benefit nomination (BDBN) if one is in place
• According to a non-binding nomination, where the trustee considers the nomination but exercises discretion
• At the trustee's discretion if no nomination is in place

Beneficiaries for super death benefits must be a 'dependant' under SIS Act s10 (spouse, child, financial dependant, interdependency relationship) or the member's legal personal representative (the estate). A nomination outside that class is invalid.

• AIA Priority Protection PDS: Non-lapsing Binding Nomination and Non-binding Nomination options inside the AIA Insurance Superannuation Scheme No 2.
• TAL Accelerated Protection PDS: Non-Binding and Binding Nominations; Binding Nomination valid for 3 years.
• Acenda Insurance (Super) PDS (27 September 2025): trustee Equity Trustees Superannuation Limited administers nominations under SIS-compliant rules.

A BDBN on a super-held policy overrides whatever the will says about that super interest. A will-only direction does not bind the trustee.

Tax treatment for death benefits

The tax outcome differs between super and non-super, and within super between dependant and non-dependant beneficiaries.

| Source of cover | Beneficiary | Tax on lump sum | |---|---|---| | Outside super | Any beneficiary | Tax-free | | Inside super (taxed fund) | Tax dependant (spouse, child under 18, financial dependant, interdependency relationship) | Tax-free | | Inside super (taxed fund) | Non-tax dependant (such as adult child) | Up to 17% on taxable component (15% plus Medicare levy) | | Inside super (untaxed source) | Non-tax dependant | Up to 32% on taxable component |

See ITAA 1997 ss302-195 and 302-200 for the dependant definitions and tax rates. SIS Act s10 defines dependant for super-law purposes; ITAA 1997 s302-195 defines death-benefits dependant for tax purposes (the two definitions overlap but are not identical for adult children).

Common considerations

• Review beneficiary nominations after major life events (marriage, divorce, birth of a child, death of a nominee).
• Lapsing binding nominations on super accounts expire every 3 years; non-lapsing options exist on some funds.
• Blended families, financial dependants outside the immediate family, and intended charitable gifts can interact unpredictably with the dependant rules; engage an estate-planning solicitor for complex situations.
• Naming the estate as beneficiary intentionally (rather than by default) is sometimes used where the will provides for staged distribution, testamentary trusts, or specific gift structures.
• Cross-check the wording on the policy schedule against any nomination held by the super-fund trustee; mismatches are a common source of delay at claim time.

Regulator anchor

• Superannuation Industry (Supervision) Act 1993 (Cth), particularly s10 (dependant) and s59 (binding nominations)
• ITAA 1997 ss302-195 and 302-200 (death-benefits dependant; tax rates)
• Insurance Contracts Act 1984 (Cth) for non-super policy interpretation
• Trust deed of the relevant super fund (governs the trustee's discretion)
• AFCA can review trustee discretion on super death benefit distributions under Part 7.10A of the Corporations Act 2001