By Nathan Isterling, Product Manager, Otivo
Most Australians pay for personal insurance inside super they'll never need. Not dramatically more—but enough that premiums quietly erode retirement savings year after year, while delivering protection nobody would actually use. A short review often uncovers insurance amounts that no longer fit today's life, leaving room to redirect those premiums where they matter.
Understanding personal insurance inside super
Personal insurance inside super includes three main types: life insurance (pays a lump sum if you die), TPD or total and permanent disability insurance (pays if you become unable to work permanently), and income protection (replaces income if you're temporarily unable to work).
Most super funds include some default cover automatically. The level varies by fund and your age, but life insurance is often set at two to three times your annual salary. TPD and income protection are common too, though not all funds include them as defaults.
The appeal of insurance inside super is straightforward: premiums are tax-deductible (deducted from your balance before tax), which means the tax office subsidises part of the cost. And crucially, if a claim is made, the benefit often flows into super tax-free rather than being treated as taxable income. For someone with dependants, this can matter significantly.
But the default position is where most people get stuck. And that's where unnecessary costs creep in.
Why most Australians carry more cover than they need
Default cover amounts don't change when your life does. You accepted whatever level your super fund set up—probably years ago—and it's stayed the same ever since. Your circumstances have shifted. Your dependants might have grown up. Your mortgage might be paid off. Your super balance has climbed. But the insurance amount? Still at the original three times salary.
Here's what often happens: at 30, with young kids and a mortgage, three times salary in life insurance makes sense. At 55, with no dependants, the mortgage gone, and a substantial super balance already built, that same three times salary cover is doing almost nothing except costing money.
A second reason for over-insurance is invisibility. Insurance premiums disappear quietly from your super balance each month. Because they're small in isolation—perhaps $10–30 a month—they don't feel like much. Over thirty years, that's thousands of dollars diverted from retirement savings instead of growing inside your fund.
A third reason is simple inertia. Most people don't know exactly how much cover they have, or even that they have it. When super is set up, insurance comes with it. Nothing forces you to revisit it unless something changes or you read your annual statement carefully.
How to assess whether your cover still fits
One approach is to think about who depends on your income. If you have no dependants—no spouse, no children, no one whose lifestyle relies on your earnings—life insurance inside super is probably unnecessary. If you have dependants, both life insurance and income protection make more sense, but the amount depends on their actual needs.
A useful framework is thinking of insurance as a bridge. If something happens to you (death or inability to work), the insurance payout should bridge the gap between what your dependants have and what they need. It's not meant to make them wealthy. It's meant to cover the shortfall.
For life insurance specifically, consider: How much would your dependants need if you weren't there? What income would they lose? What debts exist? What assets do you already have? If you have $1 million in super, a paid-off home, and one working partner, you probably need less life insurance than someone with $200,000 in super, a mortgage, and no other earner in the household.
For income protection, the question is simpler: if you couldn't work for six months or a year, how would essentials be covered? If you have other savings, a working partner, or access to family support, you might need less cover. If you're the sole earner with minimal savings, more cover makes sense.
What about your retirement timeline
One practical consideration is when you plan to retire. If you're planning to retire at 60 with enough super and other assets to live on, do you need the same level of life insurance right now? If you're planning to retire at 67, you probably do—because dependants might still rely on your income.
Some Australians find that as they approach retirement, their insurance cover can be reduced or removed altogether. At that point, what matters is whether you have enough retirement income built up; income protection becomes less relevant once you've retired, because you're no longer replacing lost earnings.
This is particularly worth thinking about if you're carrying both life insurance and income protection. Both make sense during working years, but the mix might change as retirement approaches.
What changes when you reduce your cover
Reducing cover inside super is usually straightforward. You contact your super fund, request a change, and the new level typically takes effect at your next premium date. The premium drops immediately.
One important thing: reinstating cover later can be harder. Most funds let you increase cover automatically up to a certain threshold, but above that, you'll need to provide medical information. If your health has changed since you reduced it, a new application might be declined or approved with conditions. This is why reducing shouldn't be done lightly—it's reversible, but not always painlessly.
For some people, the answer is replacing some super insurance with personal insurance outside super. Personal policies offer more flexibility and choice, though they typically cost more. For others, keeping reduced cover inside super makes sense.
When to review your cover
Many Australians find it useful to review insurance inside super at major life milestones: marriage, having children, paying off a mortgage, changing jobs, or reaching 50 or 55. But even without a specific trigger, reviewing every few years makes sense—your circumstances change, and so do available cover options.
A practical approach is to review when your super statement arrives each year, or during tax time. A quick mental checklist: Do I still have dependants? Has my income changed significantly? Has my super balance grown substantially? Are my circumstances today different from when I last set this up? If yes to any of these, it's review time.
It's also worth noting that when you switch super funds, your new fund might have different default cover or different options available. Reviewing after a switch ensures you know what you have now and whether it still fits.
Frequently asked questions
What's the difference between life insurance and TPD inside super?
Life insurance pays out if you die. TPD (total and permanent disability) insurance pays out if you become unable to work permanently due to illness or injury. They protect against different risks, which is why some people have both. Income protection is different again—it provides ongoing monthly benefits if you're temporarily unable to work and can't earn income. Different situations call for different cover.
Can I reduce my insurance cover without losing it entirely?
Yes. You can reduce your life, TPD, or income protection cover to any level you choose, including zero. The reduction takes effect at your next premium date. You can reinstate cover later, but up to certain automatic increase limits only—above those, medical underwriting may be required.
What happens to my insurance inside super when I retire?
That depends on your fund's rules and the specific insurance products. Some cover expires at retirement; some continues. Some funds offer retiree versions of insurance. It's worth checking your fund's documentation or asking directly, because the rules vary considerably.
If I reduce my insurance, should I get a personal insurance policy instead?
That depends on your circumstances. Personal insurance offers more flexibility and choice but typically costs more than insurance inside super. Some people keep a reduced level inside super while adding personal insurance; others choose personal insurance alone. Otivo's personal insurance inside super module can help you think through what might work for you.
How do I know if my cover amounts are actually reasonable for my life right now?
A good starting point is checking what cover you actually have. Most super funds show this in your annual statement or via their online portal. Then think through: Do I have dependants? What would they need if something happened to me? Do those amounts match my actual life? If they feel too high, it's probably time to review.
Where to from here
Insurance inside super works well for people who need it. But for many Australians, the default amount has drifted out of sync with current life circumstances. A review—which often takes just a few minutes—can surface cover you've outgrown and opportunity to redirect those premiums to the retirement savings that matter. If you're curious whether your current cover still fits, Otivo's personal insurance inside super module can help you explore what amount of cover might actually make sense for you today.
Disclaimer
The information in this communication is current as at May 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.