Start the new year with flexibility: Why delinking your super insurance makes sense

As we welcome 2025, it’s time to set resolutions that truly matter—like taking control of your finances. One area you might not have considered is how your life insurance is structured. If your insurance is currently linked to your superannuation fund, you could be missing out!  

When it comes to securing your financial future, flexibility is key. Did you know that you can pay for retail insurance policies directly through your super fund? This payment method combines the benefits of personalised coverage with the convenience of using your superannuation to manage premiums. Here’s why this approach might make sense for you this year...

1. Flexibility to switch super funds  

One of the biggest challenges with default group insurance through super is that it’s tied to your fund. If you decide to switch to a better-performing or lower-cost super fund, you could lose that bundled insurance cover. 

By opting to pay for retail insurance through your super fund, you can maintain continuous coverage even if you switch funds. This means you get the freedom to chase the best-performing or most cost-effective super options without the fear of leaving your insurance behind. 

💡 Stat: Australians held a total of $4.1 trillion in superannuation as of 2024, with an increasing trend toward switching funds for better investment options. 

As of September 2024, Australians' total superannuation assets reached $4.1 trillion, marking a 13.4% increase from the previous year. Source: APRA 

Additionally, member engagement has surged, with 9% of super fund members indicating an intention to switch funds within the next 12 months—the highest level in 13 years. Source: Advisor Voice 

This trend reflects a growing desire among Australians to optimise their retirement savings by seeking better-performing or more suitable superannuation options. 

Source: APRA Superannuation Statistics

2. Tailored insurance benefits  

Default insurance provided by super funds is often generic, designed to cater to the average member. While it’s convenient, this one-size-fits-all approach can leave significant gaps in your coverage. For example, the median default cover in super funds typically meets only 65% to 70% of basic death cover needs, according to the Rice Warner report. 

Retail insurance, on the other hand, is tailored to your specific needs. Whether you want comprehensive trauma, TPD (Total and Permanent Disability), or income protection insurance, retail policies provide more control over the type and amount of coverage you have. Paying premiums via superannuation lets you enjoy this level of customisation without immediate out-of-pocket expenses.

3. Tax advantages of paying premiums through super 

Another reason to consider paying retail insurance premiums through your super fund is the tax efficiency. Contributions to your super are often taxed at a lower rate (15%) compared to your regular income, making it a cost-effective way to cover premiums. 

The Australian Taxation Office (ATO) notes that these tax benefits can significantly reduce the overall cost of your insurance, particularly for policies like income protection. This makes retail insurance through super a smart choice for young professionals looking to balance affordability with comprehensive cover. 

The Australian Taxation Office (ATO) provides guidance on the tax treatment of income protection insurance premiums and benefits: 

• Premiums paid personally: If you personally pay premiums for income protection insurance outside of your superannuation, these premiums are generally tax-deductible. The ATO states, "Only the premiums you pay to protect your income (salary and wages) are deductible." Source: Australian Taxation Office 

• Premiums paid through superannuation: When income protection insurance is held and paid through your superannuation fund, the premiums are deducted from your super contributions. In this scenario, you cannot claim a personal tax deduction for these premiums.  Source: Australian Taxation Office 

• Taxation of benefits: Payments received from an income protection policy are considered assessable income and must be declared in your tax return. The ATO notes, "If you receive a payment to replace your salary and wages under an income protection policy, you must include it in your tax return." Source: Australian Taxation Office 

For tailored advice on how these tax treatments apply to your individual circumstances, have a chat with a financial adviser or tax professional. 

4. Transparency and control over costs 

Default group insurance policies often come with hidden fees that eat into your retirement savings. These fees are often bundled into the fund’s overall cost structure, making them challenging to identify individually. This lack of transparency can leave you with less control over your financial future, as the cumulative effect of these fees can significantly reduce your retirement savings over time. 

“Most Australians don’t realise they are being charged up to six different types of fees on their superannuation. These fees can be opaque and hard to compare across different funds and investment options.”

Tony Kaye, Hidden fees are a super problem 

By opting for retail insurance paid via superannuation, you can gain a clearer understanding of where your money is going. Retail policies typically provide detailed breakdowns of costs, allowing you to review and adjust your coverage periodically to ensure your premiums align with your evolving needs and budget. 

For more information on superannuation fees and how they can impact your retirement savings, check out: Super fund fees and charges you need to know about 

The bottom line 

Paying for retail insurance through superannuation combines the best of both worlds: the customisation and comprehensive coverage of retail insurance with the cost-efficiency and convenience of superannuation. This approach not only protects you against life’s uncertainties but also gives you the freedom to switch super funds and take advantage of better investment options. 

If you’re considering making the switch, reach out to a financial adviser to explore how retail insurance via super can fit into your broader financial strategy. 

💡 Tip: Set reminders to review your insurance coverage annually to ensure it still meets your needs as your financial situation changes.