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Insurance

Insurance in super: the hidden traps

Donmont Capital · Financial advice for Australians

Holding insurance inside super is convenient and cashflow-friendly — but it comes with traps that can leave you uncovered or out of pocket exactly when it matters. Know these before you rely on it.

1. Your cover can be switched off

Under the Protecting Your Super rules, insurance is cancelled if your account is inactive for 16 months (no contributions) unless you elect to keep it. Change jobs or consolidate and your old cover can quietly lapse.

2. New accounts may have no default cover

Under Putting Members’ Interests First, default insurance isn’t provided to new members under 25 or with a balance under $6,000 unless you opt in — so younger members can assume they’re covered when they’re not.

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3. It erodes your retirement savings

Premiums come out of your balance every month. Modest on its own, but over decades it’s a real drag on your final super.

4. Duplicate cover across funds

If you have several super accounts, you may be paying for duplicate insurance you can’t fully claim on — a common and avoidable waste when you consolidate.

Also watch the tax. A death benefit paid from super to a non-dependant (like an adult child) is taxed on the taxable component, and a TPD benefit released early can be taxed too. Convenient isn’t the same as optimal.

Frequently asked questions

Can my super insurance be cancelled?

Yes - under the Protecting Your Super rules, cover is cancelled if your account is inactive (no contributions) for 16 months, unless you elect to keep it. Job changes and consolidation are common triggers.

Do young people get default cover?

Not automatically - default insurance isn’t provided to new members under 25 or with balances under $6,000 unless they opt in, under the Putting Members’ Interests First rules.

Am I paying for duplicate insurance?

If you hold multiple super accounts, you may be paying premiums on cover in each - but you often can’t claim the full amount. Consolidating removes the waste, but check you’re not cancelling cover you need first.

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Sources & important information

General advice warning. This information is general in nature only and does not take into account your objectives, financial situation or needs. It is not personal financial advice. Before acting on it, consider whether it is appropriate for you and read any relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD). Consider seeking personal advice from a licensed financial adviser. Donmont Capital is an Authorised Representative (No. 1302126) of Gill & Co Advisory Pty Ltd (AFSL No. 551560).

Sources. Figures referenced are drawn from recognised public sources including the ASFA Retirement Standard, the Australian Taxation Office (ATO), APRA and ASIC’s Moneysmart. All figures are indicative and current only as at the periods stated; superannuation rules, thresholds, balances and returns change over time. Verify current figures with the original source before relying on them.

Calculators & estimates. Any calculator or projection here is a simplified estimate for general illustration only, relies on assumptions that may not reflect your situation, and is not a guarantee of future outcomes.

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