Almost every working Australian has some form of life insurance attached to their super. They don’t know how much. They don’t know what triggers a payout. They don’t know who pays for it. They’ve never read the policy document, never compared it to anything, and in most cases they assume it’ll be fine if anything goes wrong.
In a lot of cases, it won’t be.
The numbers are stark. The most recent APRA and ASIC claims data, for the year to June 2025, shows the average life insurance payout from a super fund default policy is $142,000. The average adviser-arranged retail life insurance payout is $547,000. That’s four times more. For total and permanent disability (TPD) cover, the gap is even wider: $149,000 average super payout against $791,000 for retail policies.
So roughly 70% of Australians who hold life insurance hold it through their super fund, and most of them are dramatically underinsured for what their actual situation needs.
This post walks through how super insurance actually works, what’s in your fund right now, why the cover is often worth less than people assume, the recent premium hikes that have caught a lot of members off guard, and how to decide whether your current arrangement is fit for purpose.
What’s typically inside your super fund
Almost every default super fund includes some form of insurance, deducted automatically from your account balance every month. The three common types are:
Life insurance. A lump sum paid to your nominated beneficiaries (or your estate) if you die. This is the simplest of the three. You’re either alive or you’re not.
Total and permanent disability (TPD) cover. A lump sum payable if you become totally and permanently unable to work due to illness or injury. This is where the policy definitions matter enormously. “Unable to work” can mean very different things depending on which fund you’re with and which policy version applies.
Income protection or salary continuance (SCI). Some funds include this by default, some don’t. It pays a regular monthly income (usually 70% to 87.5% of your salary, though some funds just pay a flat number like $4,000 a month) if you’re off work for medical reasons. There’s typically a 60 to 90 day waiting period, then a payment period that varies by fund (two years, five years, or to age 65).
What’s almost certainly not in your super, even though many Australians assume it is, is trauma or critical illness cover. This pays a lump sum on diagnosis of a defined list of serious conditions (typically 45 to 48 illnesses, including cancer, heart attack and stroke). It can only be held in a retail policy, not inside super. If you survive a major medical event but it knocks you out of work for months and burns through your savings, super insurance is unlikely to help unless the event also rendered you totally and permanently disabled or killed you. The story we sometimes share is that trauma insurance was reportedly invented by a South African heart surgeon who noticed his patients were often financially worse off after he saved their lives. Whether the origin story is true or not, the gap it addresses is real.
Why your super cover is probably less than you think
The default cover most people have in their super fund is unitised cover. You’re issued a certain number of units, each worth a certain dollar amount, and as you get older the dollar value of each unit drops while the premium stays the same. You could start out at 30 with $400,000 of cover and find yourself at 55 with $40,000 of cover, paying roughly the same premium the whole time.
The cover only stays at a fixed dollar amount if you have fixed cover, which usually requires you to log in to your fund and specifically choose that option, often with some basic underwriting questions. Most people never do that. So most people have unitised cover that’s quietly shrinking every year.
The other issue is that default cover hasn’t been underwritten. You got it automatically when you joined the fund. That means it almost always comes with pre-existing condition exclusions. If you had a back issue before joining, the policy may not cover anything back-related for a defined period after you start. Most members don’t know this because they’ve never read the policy document.
This is a story we’ve seen play out a lot in adviser conversations over the years. Someone comes in with a long-standing super account, confident they’ve got “good cover”, and the actual policy turns out to cover a fraction of what they thought it did. One of the most striking versions involved an older couple with a legacy MLC policy from the early 90s. The husband was paying around $30,000 a year in life insurance premiums that had been quietly eating his super balance for decades. He had about $40,000 left in super and was a few years from the Age Pension. He was convinced the amount he was “covered for” was the amount of money he actually had in super. He had no idea the cover and the balance were two different things and that the cover was about to consume what was left.
Most situations aren’t that extreme. But the gap between what people think they have and what they actually have inside their default super cover is almost universal in our experience.
The 2025 and 2026 premium hikes
Default super insurance went through a major re-pricing event recently. AustralianSuper, the country’s largest super fund managing over $410 billion across 3.6 million members, announced significant premium increases effective 30 May 2026. Life cover premiums up 20% on average. TPD cover up 40% on average. Income protection premiums up to 38%.
CareSuper has also flagged increases from April 2026. The driver, according to AustralianSuper, is a surge in mental health and disability claims, particularly among younger members. Mental health is now the leading cause of TPD claims, accounting for almost one in three paid claims, and mental health-related TPD claims among Australians in their 30s have increased over 700% in the past decade.
That’s the visible side of the re-pricing. The less visible side is what some other funds have done in past re-pricing cycles. Instead of openly putting premiums up, some funds have quietly altered the policy terms to reduce the liability without changing the headline price. When the fund’s insurer demands more, the fund can put up the premium (transparent) or quietly water down the cover (opaque). Both happen.
A specific example that’s caught members out: Sunsuper (now Australian Retirement Trust) used to offer lump sum TPD cover. Members held what they thought was a $200,000 lump sum payable on becoming disabled. The policy was altered so the same nominal cover is now paid in instalments over six years, with the member required to continually prove they remain disabled. The notification went out by mail to all affected members. Most never opened it. We’ve seen at least one member discover this only at claim time, when he was permanently disabled and trying to pay off his mortgage with what he thought was a lump sum, only to learn he’d be receiving an instalment of around $30,000.
The mechanism that allows this is structural. With your super insurance, the fund is the policy owner, not you. The insurer talks to the fund. The fund decides what to do. The member finds out by letter, and most letters from super funds never get opened.
The alternative: retail insurance
The alternative to default super cover is a retail policy, individually underwritten, where you are the policy owner. The same insurance types are available (life, TPD, income protection) plus trauma, which super can’t hold. Retail policies are generally:
- Individually underwritten. You go through medical questions, sometimes a doctor’s report or blood tests for higher cover amounts. The insurer assesses you specifically and tells you upfront exactly what they will and won’t cover.
- Guaranteed renewable. The insurer is contractually required to renew the policy every year regardless of changes to your health, occupation or hobbies. If you become a higher risk after taking out the policy, that’s the insurer’s problem. They can’t drop you and they can’t change the terms negatively without your consent.
- Better quality terms. Policy definitions are generally tighter and more favourable, particularly for TPD and income protection. Whether a claim gets paid often comes down to whether the policy definition matches your medical situation, and retail policies tend to have stronger definitions.
The big trade-off is that you have to go through underwriting. The insurer will offer one of four outcomes: accept you on standard terms, accept with exclusions for specific pre-existing conditions, accept with a loading (a higher premium) for elevated risk, or decline. Whatever the outcome, you find out upfront, before you start paying. That certainty matters. The alternative is finding out at claim time that the default cover doesn’t apply to your situation.
A practical note on underwriting honesty: every life insurance company has its own focus areas. Some scrutinise weight and BMI hard because they’re worried about diabetes claims. Others focus on mental health questions because that’s where their claims pressure is. When you’re answering the questions, answer them clearly and completely. Vague or incomplete answers are the fastest way to get declined or offered suboptimal cover. If you smoke or have vaped in the past 12 months, you’ll be assessed at smoker rates, which are roughly double non-smoker rates. Lying about it doesn’t help. The insurer gets access to your full Medicare records if you go to claim, and a discrepancy between your application and your medical history is grounds for declining the claim.
The old days where default super cover was meaningfully cheaper than retail cover are largely behind us. In our experience, nine times out of ten a retail policy gives a higher level of cover and better quality terms at a similar or lower premium, and the premiums can still be funded from your super balance using a structure called “insurance through super outside of MySuper” or similar.
Please note: All figures, projections and scenarios in this article are approximate and for illustrative purposes only. Individual outcomes will vary based on personal circumstances, investment returns, fees, and current government policy. This is general information, not personal advice.
When default cover is actually the right call
To be clear, retail cover isn’t always the better option. There are situations where keeping your existing default super cover genuinely makes sense, and we recommend exactly that to a meaningful share of clients.
Pre-existing health conditions. If you’ve developed a health issue since you originally joined your super fund, your default cover may still apply to it (subject to the policy’s pre-existing condition rules), where a new retail policy almost certainly would not. Replacing default cover with retail in this situation can leave you worse off, not better.
Smoker status changes. We’ve seen clients who picked up smoking on a holiday and never quite stopped. If your default cover was issued before you started smoking, the existing cover may be on non-smoker rates while any new retail cover would be at smoker rates (roughly double). Keeping the default cover may be the cheaper option in that case.
Hazardous occupations. If you’re a blue-collar worker in a high-risk industry like mining, offshore work, long-haul truck driving, or anything physically intensive, retail premiums get expensive fast. Default super cover prices you as part of the pool of all members in that fund, which can work in your favour if the pool skews toward office workers (white-collar rated).
Hazardous hobbies. Personally, one of our team has a left knee exclusion and a martial arts exclusion on a retail policy, because of historical knee issues and the fact that they actively compete in jiu-jitsu. The retail insurer carved both out. The default super cover doesn’t ask. If your hobby is unusual enough to draw exclusions on retail (skydiving, motor racing, mountaineering, martial arts competition), the default super cover may quietly provide cover the retail policy won’t.
You can’t be bothered going through underwriting. Honestly, this is a legitimate reason for some people. Underwriting takes a few weeks, involves answering personal medical questions, and isn’t a fun process. Some people would rather have imperfect cover than perfect cover that requires effort. That’s a valid choice.
The point isn’t that retail is always better. The point is that default super cover should be a deliberate choice based on knowing what it does and weighing it against the alternative. Almost no one is making that deliberate choice today, because they’ve never looked.
How to actually check your super insurance
A starting point that takes about 20 minutes:
- Log in to your super fund. Find the insurance section. Note down what cover types you have (life, TPD, income protection), what the current dollar amount is, and what the monthly premium is.
- Check whether the cover is unitised or fixed. If unitised, look at the schedule in the policy document showing how the dollar amount of cover changes with age. Most people are surprised.
- Read the pre-existing condition rules. Buried in the policy document. Look for the section on exclusions for conditions that existed before the cover commenced.
- Check the TPD definition. Look for the difference between “own occupation” and “any occupation” definitions. “Any occupation” definitions are much harder to claim under. Most super fund default TPD is “any occupation”.
- Check the income protection benefit period. Is it two years? Five years? To age 65? Big difference at claim time.
Once you’ve got that information, the second question is whether the cover matches what you actually need. As a rough mental check:
- If something happened to you tomorrow, would the cover clear your mortgage?
- Would it provide enough to keep your family going for a meaningful period?
- If you were off work for two years with a medical issue, would the income protection actually cover your living costs?
Calculating an accurate insurance need is its own topic and depends heavily on your debts, dependants, income and savings. But the quick test is the one that matters most: if something happened and you went to claim tomorrow, would the payout meaningfully solve the problem, or would it be a small contribution that leaves your family in trouble?
If the answer is the latter, it’s worth looking at what other options exist.
Frequently asked questions
How much life insurance is in my super? It depends entirely on which fund you’re with, what level of cover you have, and whether the cover is unitised or fixed. The average default super life insurance payout in Australia for the year to June 2025 was around $142,000. Log in to your fund or check your latest member statement to see your specific cover amount.
Is the insurance in my super enough? For most working Australians with a mortgage, dependants or significant income, default super cover is unlikely to be enough on its own. The gap between average default payouts ($142,000 for life cover) and average adviser-arranged retail payouts ($547,000 for life cover) reflects how much underinsurance exists in the default system. Whether your specific cover is enough depends on your debts, dependants, and income.
What’s the difference between unitised and fixed cover? Unitised cover is the default in most super funds. You hold a number of units, each worth a dollar amount, and the dollar amount of each unit drops as you age while the premium roughly stays the same. Fixed cover stays at a set dollar figure regardless of age, with the premium increasing as you get older. Most members default to unitised cover unless they specifically change it.
Why did AustralianSuper increase insurance premiums by 40% in 2026? AustralianSuper announced premium increases effective 30 May 2026, citing a surge in mental health and disability claims, particularly among younger members. Death cover premiums went up around 20% on average, TPD around 40%, and income protection up to 38%. The fund’s insurer is TAL. CareSuper also flagged increases from April 2026.
Does my super cover pay out if I get cancer? Not unless the cancer either kills you or leaves you totally and permanently disabled under the policy’s definition. Standard super insurance is life cover, TPD and income protection. It doesn’t include trauma or critical illness cover, which is what pays a lump sum on diagnosis of conditions like cancer, heart attack or stroke. Trauma cover is only available through retail policies, not inside super.
Can I keep my super cover and add retail cover on top? Yes. This is a common approach. Members with a default cover they want to retain (because of pre-existing conditions, smoker status or occupational rating advantages) can add a retail policy on top to fill the gap to the level of cover they actually need. This works particularly well where the existing default cover has features that would be lost if replaced.
What happens to my super insurance if I roll over to another fund? Generally, your insurance is cancelled when the account is closed. The new fund will issue its own default cover (if applicable), but that cover will be subject to new pre-existing condition rules and may have different terms. Anyone considering a rollover with insurance attached should arrange replacement cover before closing the old account, particularly if they’ve developed health conditions in the meantime.
Do I have to take the default super insurance? No. You can opt out, tailor the cover, or replace it. Since the Protecting Your Super reforms, default cover is now switched off automatically for inactive accounts and for members under 25 unless they opt in. You can opt out at any time by contacting your fund.
Worth a closer look
If you’ve got a super account and you’ve never actually checked what’s in it for insurance, it’s worth 20 minutes of your time to log in, find out, and read the basics of what the policy actually covers. For most working Australians with a mortgage, dependants or a meaningful income, the default cover is unlikely to be the right answer on its own.
If you’d like a general conversation about how super insurance and retail insurance work together, or what to look for in your current cover, book a free chat with the Wealthlab team. No cost, no pressure, no jargon.
For more on this and other retirement and super topics, The Wealthlab Podcast covers the practical mechanics in detail with Scott and Phil.
