You can hold life (death) and TPD insurance either inside your super or outside it, through a personal policy. Both pay a lump sum — but the tax, cashflow and claim mechanics differ enough to matter.
Inside super
- Premiums are paid from your super balance, not your take-home pay — easier on cashflow, but it erodes your retirement savings over time.
- Often cheaper via group rates, and generally tax-effective going in.
- Own-occupation TPD generally can’t be held inside super (since 1 July 2014) — only the stricter “any-occupation” definition qualifies.
- A death benefit paid to a non-dependant (e.g. an adult child) is taxed on the taxable component — typically 15% plus Medicare.
Outside super (personal policy)
- Premiums come from your own pocket — costs more in cashflow but doesn’t eat your super.
- More flexibility on features and definitions (including own-occupation TPD).
- A life insurance payout is generally tax-free to your beneficiaries when held outside super.
Frequently asked questions
Is life insurance cheaper inside super?
Often yes, thanks to group rates and the premium coming from your balance rather than your pay. But it erodes your retirement savings, and some definitions (like own-occupation TPD) aren’t available inside super.
Is a life insurance payout taxed?
A personal (outside-super) life payout is generally tax-free to your beneficiaries. Inside super, a death benefit paid to a non-dependant such as an adult child is taxed on the taxable component, usually 15% plus Medicare.
Can I have both?
Yes - many people hold a base of cover inside super for cashflow and top up with a personal policy for features and to keep some cover off their balance.
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