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Are you paying too much for insurance through your super?

9 minutes| Jun 01 2026

By Philippa Billings, Chief Advice Officer, Otivo

Every year, a payment leaves your super before you ever see it — and most people couldn't tell you how much. It's the premium for insurance you may never have actively chosen, set at a default level by your fund the day you joined. For some Australians that cover is a quiet safety net; for others it's quietly trimming a retirement balance they're working hard to grow. Here's how insurance through super works, why default cover so often doesn't match real lives, and what a review actually looks at.

Insurance through super usually covers life, total and permanent disability (TPD), and income protection. Premiums are deducted from your super balance, which reduces retirement savings over time. As at June 2026, ASIC's Moneysmart notes default cover isn't tailored to individual circumstances, so checking whether the type and amount still fit is a common step.

How does insurance through super work?

Most Australians have some insurance through their super, and many of them never signed up for it directly. When you join a fund, you're often given a default level of cover automatically, with premiums deducted from your super balance rather than your take-home pay.

That cover usually comes in three types. Life cover, sometimes called death cover, pays a lump sum to your beneficiaries if you die. Total and permanent disability (TPD) cover pays out if illness or injury means you're unlikely to work again. Income protection replaces part of your income for a set period if you can't work because of illness or injury. According to ASIC's Moneysmart, these three forms of cover are the ones most commonly held inside super.

The appeal is real. Funds buy cover in bulk, so premiums can be cheaper than equivalent cover bought directly, and default cover usually involves no health checks. Paying premiums from your super can also be tax-effective depending on your circumstances. The catch is the part most people forget: every premium is a small, automatic withdrawal from the balance you're trying to build for retirement.

Why doesn't default cover always match your life?

Default cover is designed for a fund's membership as a whole, not for you in particular. As Moneysmart puts it, default insurance isn't tailored to any one member's circumstances — which means the amount and type you've been given may have little to do with your actual situation.

Consider how much can change in a few years. A 28-year-old renting with no dependants has very different needs from a 45-year-old with a mortgage and two children, who looks different again at 60 with the house paid off and the kids grown. Default cover doesn't move with those milestones unless someone tells it to. Many Australians find they're carrying a level of cover that was set the day they joined a fund and never revisited.

The mismatch runs both ways. Some people hold more cover than their responsibilities call for, paying premiums that chip away at their balance for protection they may not need. Others hold less than they'd want, having never realised the default was modest. A common consideration is simply whether the cover still fits, rather than assuming it does because it's there.

How could insurance be quietly reducing your retirement savings?

Because premiums come out of your super balance, the cost isn't only the dollars deducted today. It's also the growth those dollars might have earned over the years until you retire. Moneysmart notes this matters more as you get closer to retirement, when there's less time for the balance to recover.

There's a second, sneakier drain: duplicate cover. If you've changed jobs and picked up new super accounts along the way, you may be holding insurance — and paying premiums — in more than one fund at once. The frustrating part is that you generally can't claim the same benefit twice, so the second set of premiums often buys protection you'd never actually collect on. Moneysmart flags multiple accounts as one of the most common reasons people pay for cover they don't need.

It's worth thinking about this in concrete terms. A few hundred dollars a year in premiums on a forgotten second account doesn't sound like much, but left running across a decade or more, the lost contributions and the growth they would have earned add up to a meaningful dent in a final balance.

Could trimming your cover leave you exposed?

Here's the tension that makes this topic tricky: cutting insurance isn't automatically a win. The same logic that says "stop paying for cover you don't need" can tip into "cancel cover you'd be glad of later", and the two are easy to confuse.

This isn't hypothetical. In 2019 the government introduced reforms — the Protecting Your Super and Putting Members' Interests First measures — specifically to stop premiums eroding the balances of disengaged members. Under those rules, funds cancel insurance on accounts left inactive for 16 consecutive months unless the member opts to keep it, and default cover is no longer switched on automatically for new members under 25 or for accounts that have never reached $6,000, with limited exceptions such as higher-risk occupations. The Association of Superannuation Funds of Australia (ASFA) estimates around five million accounts lost cover as a result.

For many people that was the right outcome — fewer premiums draining small or idle balances. But ASFA has also pointed out that some Australians were left without cover they assumed they still had. The lesson isn't "more cover" or "less cover". It's that cover changing without you noticing, in either direction, is the thing to watch.

What does reviewing your insurance through super involve?

A review doesn't have to be complicated. Many Australians find it comes down to a five-step check.

  1. Find out what you've actually got. Your fund's product disclosure statement and your annual statement show the type of cover, the amount, the insurer, and the premiums coming out.
  2. Check for duplicates. If you have more than one super account, look at whether you're paying premiums in more than one place.
  3. Compare the cover to your life now. Think about dependants, debts such as a mortgage, and how your income would be replaced if you couldn't work. Moneysmart's life insurance calculator can help estimate the gap.
  4. Note the conditions and limits. Some cover ends at a certain age, and TPD cover often ends earlier than life cover. Pre-existing condition rules and waiting periods can also apply.
  5. Decide what fits, and how to keep what you want. Cover can usually be reduced, increased, or opted into, though increasing it may involve health questions.

Naming the steps is the easy part; working through them is where the value sits. Otivo's personal insurance inside super module can help you work through the amount of cover that might suit your circumstances.

Frequently asked questions

Is insurance through super worth keeping?

It depends on individual circumstances. Insurance through super can be a cost-effective safety net, particularly for people with dependants or debts, but default cover isn't tailored to anyone in particular. Many Australians find it useful to weigh the cover against their current responsibilities rather than assume the default amount is right.

Can I reduce or cancel insurance in my super?

Yes. You can usually reduce, cancel, or opt out of cover by contacting your fund, and you can often apply to increase it, though increasing cover may involve health questions or medical checks. It can be worth understanding what you'd be giving up before making a change, since some cover is harder to obtain again later.

How do I know if I'm paying for insurance in more than one super fund?

Check the annual statement or product disclosure statement for each super account you hold. Each will show whether insurance premiums are being deducted. People who have changed jobs often accumulate multiple accounts, and ASIC's Moneysmart highlights this as a common source of duplicate premiums.

Does insurance through super reduce my retirement savings?

Premiums are deducted from your super balance, so they do reduce the amount invested for retirement, along with the growth that money might have earned. Moneysmart notes this effect can matter more closer to retirement, when there's less time for the balance to recover.

A quick look can be worth it

Insurance inside super is one of those things that quietly runs in the background for years — which is exactly why an occasional look can be worth the few minutes it takes. Otivo is a licensed Australian financial advice platform (AFSL and Australian Credit Licence No. 485665), and its personal insurance inside super module can help you think through how much cover might suit your situation, factoring in your existing cover, dependants, debts, income, and retirement goals. Whether the answer turns out to be more cover, less, or the same, knowing where you stand puts the choice back in your hands.

Sources

Disclaimer

The information in this communication is current as at June 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.

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