Should you insure inside or outside super?

ARTICLE

26 February 2026

4 mins read

When it comes to choosing whether to hold personal insurance through super or outside super, both options have pros and cons. Which one is right for you?

Insurance through super: default vs advised

Most people have some level of default insurance inside their superannuation. This cover is generally quite cost effective. In addition, default cover:

can be easier to obtain and easy to opt out of
does not usually require medical checks to get automatic cover – although there can be limitations at claim time

Alternatively, you can choose to speak to a financial planner to get an advised solution. Some options can include all or a portion of this cover being funded through your super.

premiums may feel cheaper because they aren’t hitting your wallet
advised insurance in super may require underwriting and medical checks above certain thresholds, but is more tailored to your needs than default insurance
can help you stay covered during periods of low cash flow

Key takeaways:

default insurance in super provides a relatively low-cost safety net, but it might not provide the right amount or type of cover for your individual situation
advised cover can be funded or partly funded through super, is tailored to your needs and offers more certainty at claim time
insurance through super saves you money now, but can erode your super balance which may impact how much you have at retirement

Insurance outside super

The main advantage of paying for personal insurance outside of super is you have more options to tailor the cover to your needs. Furthermore:

policies are typically more flexible and customisable
access to trauma cover (which provides a lump sum payment if you’re diagnosed with a serious illness such as cancer, heart attack or stroke) is not typically offered through super
offers higher levels of cover
premiums don’t eat away at your final super balance
not governed by the Superannuation Industry Supervision (SIS) Act which imposes certain conditions of release to pay out funds depending on the type of cover

What types of insurance can I get?

Many super funds offer three basic forms of personal insurance: life, total and permanent disablement (TPD) and income protection. Other types of insurance like trauma cover generally can’t be held within super.

Outside super, you can mix and match types of cover. Policies can sometimes be packaged up with one provider to reduce your premiums, which could otherwise be more expensive.

What’s the right level of insurance for me?

Automatic, and typically low levels of life and TPD cover within a super fund can be fine for a young person starting their first job. But if you’re at another life stage – with a partner, children and a mortgage, for instance – it can be a different story.

Insurers providing cover within super can put caps on the levels of cover available, so be sure to check with your fund. Outside super the levels of cover can be more flexible, but your options may also depend on your age and health.

Do I need a medical check-up?

Super fund members who are offered automatic cover often don’t need a medical check-up to get insured. Instead, your fund spreads the risk among its many members.

At the same time, while it can be possible to find cheaper premiums outside super, considerations such as age, health and lifestyle matter. As insurance is offered on a case-by-case basis, some people may face higher premiums – but they may also have more cover options.

Buying insurance online often avoids medical check-ups too and can be quick and easy, but it’s important to answer the medical questions honestly so you’re covered when you need it.

Tailoring the cover for you

Insurance options through super may be less flexible, as super laws restrict policy definitions and the ability to customise policies. Automatic covers usually require little, if any, consultation with the fund member, which may or may not suit your needs.

Policies outside super begin with a customisation process. This can be important if you need specific levels of cover. It’s also useful if you want certainty around how, when and to whom payments are made if you make a claim.

Tax considerations around insurance

For most super fund members, it can be difficult to beat the tax effectiveness of paying your personal insurance premiums through your super. However, life insurance benefits can be subject to tax if paid to a non-dependant for tax purposes, such as an adult child, while other insurance benefits paid from super may also be taxable.

Premiums are often paid from your pre-tax contributions – for example, from your employer’s compulsory super payments or extra contributions you make through salary sacrificing. This means your premiums are generally paid from income that you haven’t paid tax on. In contrast, life and TPD insurance premiums paid outside super come from after tax money in most cases.

Remember, although your premium costs don’t come out of your own pocket, they can eat away at your final super balance. So if you’d prefer not to reduce your retirement nest egg to stay covered, then insurance outside super could be the answer.

The way forward?

The question of whether to get insurance inside or outside super, or a mix of both, is different for everyone.

Once you’ve made your choice, it’s not a set-and-forget decision. With each life stage and major event – such as a marriage, childbirth, mortgage or pay rise – comes new and different responsibilities. So be sure to check in with your financial planner if your situation changes.

Talking to a financial planner can help you understand your situation and make confident financial decisions (big or small) so you can get the most out of life.

Disclaimer:
Copyright © 2026 AIA Financial Services Pty Limited (ABN 68 008 540 252, AFSL 231109), trading as AIA Financial Wellbeing. All rights reserved. This information is current at the date of this publication and is subject to change. This provides general information only, without taking into account factors like the objectives, financial situation, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, health, medical, nutritional or other advice. Before acting on the information in this publication, individuals should consider its appropriateness having regard to such factors.