Superannuation Insurance

Superannuation insurance is life, TPD, or income protection cover held inside a super fund. Premiums are deducted from your super balance, not from take-home pay. Most APRA-regulated super funds offer default cover that you can adjust or opt out of.

The tax advantage is that premiums are funded by concessional contributions taxed at 15% in the fund, rather than your marginal tax rate. The trade-off is that premiums reduce your retirement balance.

Super-held vs retail cover

| Factor | Super-held | Retail (personally held) | |---|---|---| | Premium source | Super balance | After-tax salary | | Effective premium tax rate | ~15% (concessional contribution tax) | Marginal rate (deducted only for income protection) | | Cover flexibility | Limited menu set by fund | Wide choice across 9 panel insurers | | Definitions | Often stricter (any-occupation TPD) | Often broader (own-occupation TPD available) | | Claim process | Insurer plus trustee approval | Insurer only | | Tax on death benefit to non-dependants | Up to 17% on taxable component | Tax-free |

Limitations to be aware of

• Stricter definitions: super-held TPD typically uses an any-occupation test; retail can offer own-occupation
• Trustee approval: the fund trustee must be satisfied a condition of release has been met before paying a TPD benefit
• Balance erosion: premiums compound out of your retirement savings over decades
• Inactivity rules: under the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, default insurance cancels for accounts inactive for 16 months or for low-balance accounts unless you elect to keep it

When super-held cover makes sense

Default super cover is a reasonable baseline for younger members on tight cash flow or members whose health makes retail underwriting difficult. Retail cover often suits higher-income earners who need broader definitions, larger sums insured, or guaranteed renewability. The right answer depends on your circumstances; this is general advice only.