Insurance Inside Super with MLC Life Insurance

Did you know you can choose to hold life insurance, and pay premiums for it, through a Super account? Having insurance can make a big difference to your family’s lifestyle if something were to happen to you in the future. And there can be benefits of holding this insurance inside super.

Here are three things to consider when deciding whether to hold your insurance inside Super:

  • The type of insurance you need,
  • How you want to pay for your insurance, and
  • The way in which you want your benefits to be paid to you or your beneficiaries.

We always recommend getting guidance from your financial adviser before making any decisions about your insurance options. They can help you understand your individual circumstances and goals to ensure you have the right cover for your needs.

There are two different ways to get insurance inside Super

You may have already been provided with a default level of insurance cover through your employer super fund. This is typically referred to as Group Insurance cover.

Alternatively, or in addition to default cover, you may wish to apply for a more personalised level and type of cover through a range of Retail Insurance options.

Your financial adviser will be able to assess your personal circumstances and determine an appropriate level and type of cover for you.

Why have insurance inside Super?

When you hold insurance cover inside Super, your insurance policy will be owned by the trustee of your superannuation fund. While there can be advantages to holding your insurance in Super, there are also things to consider when deciding if it’s the right option for you.

Let’s take a look at some of these advantages and considerations.


Premiums can be tax-effective

If you are an employee, you (or your employer), can choose to make before-tax Super contributions to pay for your premiums.

Similarly, should you choose to make a personal super contribution to pay for your premiums, you can choose to claim a tax deduction for these contributions.

Paying for your premiums in either of these ways could mean a significant cost saving compared to paying for premiums outside of Super with your after-tax income.

It’s worth noting that limits apply to the amount you can contribute to super in this way.

Other Government concessions

The Government also provides a number of other superannuation concessions. For example, lower income earners may be able to benefit from a Government Co-contribution. Similarly, a tax offset may be available for spouse contributions made to super.

If you’re eligible for these concessions, this can also help meet the costs of premiums.

Less impact on your cash flow

Insurance premiums are deducted from your Super account so it won’t affect your cash flow – unless of course you choose to make voluntary Super contributions to pay for your premium.

You can also use rollovers to pay for premiums and benefit from a tax discount.

More payment options

Depending on your circumstances at the time of your death or TPD, you can choose to receive part or all of your benefit as a pension, or to retain some of the money in the super system.

Holding death/TPD cover outside super is limited to lump sum only.

Group insurance only

Premiums are generally cheaper

The cost of group insurance cover is generally cheaper than retail cover because the cost is based on the overall risk of members of the super fund.

Basic default cover without underwriting

If your Super fund offers Group Insurance, you are usually able to obtain a default level of cover without having to first satisfy the usual health and financial checks.


Condition of release

Before any insurance in Super benefits can be paid to you or your beneficiaries you will need to meet both:

  • the insurance terms and conditions, and
  • a condition of release set by Superannuation law.

How proceeds are taxed

Death and Total and Permanent Disability (TPD) benefits paid by your Super Fund may be subject to tax. The level of tax payable (if any) is based on your, or your beneficiary’s, circumstances at the time of payment.

For insurance held outside Super, Death and TPD benefits paid by the insurer are generally not taxed.

Beneficiary nomination limitations

Where life insurance is held inside Super, there are limitations around who can receive your death benefit.

For insurance outside Super, you can nominate any person, business or company as your beneficiary. The proceeds are then usually paid to them directly.

More restrictive insurances and terms

While you can hold Death, TPD and Income Protection insurance inside Super, superannuation funds are not permitted to offer Critical Illness insurance.

Further, TPD cover held inside Super can only be offered on an ‘any’ occupation basis – that is, based on you being unlikely to work in ‘any’ occupation for which you are reasonably qualified.

Whereas TPD outside Super provides an option to have cover based on you being unlikely to work in your ‘own’ occupation, which may be more suitable for your personal circumstances.

Less superannuation for retirement

As your insurance premiums are deducted from your Super account, it may reduce your balance. And, as your returns are compounded, this may have a bigger impact than you might expect.

This means you may have a smaller superannuation balance available when you retire.

Your insurance may be cancelled if you stop contributing or your balance is too low

To retain your insurance inside Super, you or your employer must make contributions to your Super fund. If you haven’t contributed in 16 months or haven’t advised the fund you want to retain your cover, it may be cancelled.

Multiple fees and costs

If you have more than one Super Fund you may be paying fees for each Super account.

Group insurance only

The trustee owns the policy

If your insurance is provided by your super fund under a Group Insurance policy, the trustee of the Super fund has the right to make changes to definitions and payment terms.

Find out if insurance inside Super is right for you

We suggest speaking to your financial adviser to help you understand the advantages and things to consider before holding your insurance in Super. They can help you determine the insurance type and level of cover that is most appropriate for your individual circumstances and needs.