The life insurance you didn't know you were paying for

Open your super fund's app and find the insurance tab. For most working Australians there are two or three policies sitting there: life cover (paid to your family if you die), total and permanent disability or TPD (paid if you can never work again), and sometimes income protection. You were defaulted into them. The premiums come straight out of your balance, which is why you've never felt them. That doesn't mean they're free.

Why it's there in the first place

Australia bolted insurance onto super deliberately. Group policies negotiated by big funds are cheap because the insurer takes everyone, healthy or not, usually without medical questions. For someone with a health condition that would make retail insurance expensive or impossible, default cover in super can be the best deal available anywhere. That part of the system works well.

Since the 2019 and 2020 reforms, cover no longer starts automatically until you're 25 and your balance passes $6,000, and it switches off if your account sits inactive for 16 months. Those changes stopped young casual workers paying for cover they didn't need across four different funds. They also mean some people who assume they're covered aren't.

What it's quietly costing you

A typical default arrangement might cost $300 to $600 a year, more as you age, since group premiums climb steeply through your 40s and 50s. Paid from your balance, that money also stops compounding. A 35-year-old paying $500 a year in premiums to retirement gives up not just the premiums but the decades of growth on them. Depending on returns, the all-in cost can run well into five figures.

A $500 premium doesn't cost $500. It costs the premium plus decades of lost compounding.

None of which makes it a bad deal. It makes it a real cost that deserves the same ten minutes of attention you'd give a phone plan. The question is whether the cover matches your life.

Where the defaults fall over

Default amounts are set by formula, not by your life. A common default might pay $200,000 on death. For a single renter with no dependants, that's arguably $200,000 more than needed. For a 40-year-old with a $600,000 mortgage, a partner working part time and two kids in primary school, it wouldn't clear half the home loan, let alone replace fifteen years of income.

The rough arithmetic for how much cover a family actually needs: outstanding debts, plus enough to replace your income for however many years your family would need it, plus future costs like education, minus what you already have in super and savings. For that hypothetical 40-year-old, the honest number often lands north of $1 million. Run your own numbers in our insurance needs calculator.

TPD has a quieter trap: definitions. “Any occupation” cover pays only if you can't work in any job suited to your education and experience, which is a hard bar to clear. “Own occupation” cover, generally only available outside super, pays if you can't do your job. A surgeon who loses fine motor control might fail an any-occupation claim because she could, in theory, teach. Read the definition in your fund's insurance guide. It's one paragraph, and it decides everything.

What to actually do about it

First, find out what you have. The insurance section of your fund's portal lists cover type, amount and premium. Second, decide what you need, which mostly depends on who relies on your income. Third, adjust. Inside super you can usually increase cover (sometimes with health questions), reduce it, or cancel it entirely. People with dependants and a mortgage typically need more than the default. People with no dependants can often justify trimming.

One warning before cancelling anything: if your health has changed since the cover started, you may not get it back on the same terms. Cancel only after replacement cover is in force, never before. And if you've consolidated funds recently, check the insurance didn't quietly disappear in the move. It happens more often than the ads about lost super let on.