The Super Insurance Trap: Are You Paying for Cover You Can’t Actually Claim?

Most Australians with super have life insurance, total and permanent disability (TPD) cover, and sometimes income protection built into their fund — and most of them have never read the policy. That’s the problem. Each year, an estimated 5,000 Australians die holding super death cover that produces no payout. Another 11,000 suffer a total and permanent disability and receive nothing from their TPD cover. Combined, that’s $2.17 billion in insurance premiums that paid for policies the holders couldn’t claim. Here is why this happens — and how to check whether your cover would actually pay when you need it.

General information only. Not financial advice. Insurance needs are highly personal — consult a licensed financial adviser or insurance specialist for advice specific to your situation.

Table of Contents

• What insurance do most Australians hold in super?
• Why super insurance often doesn’t pay — the five traps
• The 2019 reforms that cancelled cover for 5 million accounts
• How to check your cover right now
• When to lodge an AFCA complaint
• Frequently asked questions

What Insurance Do Most Australians Hold in Super?

Most industry and retail super funds offer three types of insurance as default or opt-in cover: ^[1]

• Life (death) cover: pays a lump sum to your nominated beneficiaries if you die. As at 2023–24, approximately 9.3 million Australians held life cover inside super.
• Total and Permanent Disability (TPD) cover: pays a lump sum if you become totally and permanently disabled and unable to work. Approximately 8.2 million Australians held TPD cover inside super.
• Income protection (salary continuance): pays a monthly benefit (typically 75–85% of your pre-disability income) if you are temporarily unable to work due to illness or injury. Less universally included as a default.

Annual premiums for all three types of group insurance held in super totalled $6.8 billion in 2023–24 — all deducted directly from member account balances, quietly eroding retirement savings. ^[1]

Why Super Insurance Often Doesn’t Pay — The Five Traps

1. “Any occupation” TPD definition: Many default TPD policies pay only if you are unable to work in any occupation — not just your own. A surgeon with a hand injury may be denied TPD because they could theoretically work as a receptionist. “Own occupation” TPD is more generous but usually not the default and often costs extra or requires retail (outside-super) coverage.
2. Pre-existing condition exclusions: Group cover inside super typically excludes pre-existing conditions — meaning an illness or injury you had before the cover commenced may be excluded from a claim. This is often only discovered at claim time.
3. Waiting periods not met: Income protection cover has waiting periods (typically 30, 60, or 90 days) before benefits commence. Many members don’t know their waiting period and assume payments begin immediately.
4. Cancelled cover from inactivity or low balance: The 2019 Protecting Your Super reforms cancelled insurance on accounts inactive for 16+ months or with balances under $6,000. If you left an employer and stopped contributing, your cover may have been switched off — even if you’re still paying premiums. Yes, some funds charged premiums on cancelled cover — a problem ASIC has taken enforcement action against.
5. Wrong beneficiary nomination: Death cover inside super requires a valid beneficiary nomination. If you have no valid nomination, or your nomination has lapsed, the trustee decides who receives the payout — not you (see Blog 007).

The 2019 Reforms That Cancelled Cover for 5 Million Accounts

The Protecting Your Super (PYS) and Putting Members’ Interests First (PMIF) reforms, effective from July 2019, were designed to stop insurance premiums eroding small and inactive super accounts. They achieved this by automatically switching off insurance cover for: ^[3]

• Accounts with balances below $6,000
• Members under 25 years of age
• Accounts that had been inactive for 16 or more months (no contributions received)

Approximately 5 million accounts had their insurance switched off under these reforms. Members can opt back in, but most didn’t — because they didn’t know their cover had been cancelled. The problem is worst for young workers who start a new job, have a gap in employment, and assume they’re still covered at their original fund when they’re not. ^[3]

How to Check Your Cover Right Now

1. Log into your fund’s portal or app. Find the insurance section — it should show your current covers, benefit amounts, premium amounts, and whether cover is active or cancelled.
2. Read the Product Disclosure Statement (PDS) for your insurance. Specifically check: the definition of TPD (any occupation vs own occupation), exclusions for pre-existing conditions, waiting periods for income protection, and any age-based cover reductions.
3. Check whether your beneficiary nomination is valid and current. A valid binding death benefit nomination means the insurance payout goes to the right person. An expired or non-binding nomination means the trustee decides.
4. Consider whether the default cover is adequate. Default insurance is designed for the average member — which may mean it’s either far more than you need (wasting premiums) or far less than your family needs (underinsured).
5. Check if cover was cancelled by inactivity. If you’ve changed jobs or had gaps in employment, check whether your account has been flagged as inactive and insurance switched off.

When to Lodge an AFCA Complaint

If your super fund or insurer has denied a claim, you have the right to lodge a complaint with the Australian Financial Complaints Authority (AFCA) — at no cost. AFCA can require funds to reconsider denials, provide compensation, and override insurer decisions in many cases. ^[5]The 2025 increase in TPD and death benefit complaints to AFCA (+43%) reflects both the complexity of super insurance definitions and growing member awareness. AFCA upholds a significant proportion of complaints against insurers — particularly where definitions are ambiguous or where funds failed to provide adequate disclosure. There is a 6-year time limit to lodge an AFCA complaint from the date the decision was made.

Frequently Asked Questions

Does my super include life insurance?

Most likely yes — around 9.3 million Australians have death cover inside super. But check your fund portal to confirm cover is active and hasn’t been cancelled by inactivity or low balance (a 2019 reform issue).

What’s the difference between “any occupation” and “own occupation” TPD?

“Any occupation” pays only if you can’t work in any job whatsoever — the hardest test. “Own occupation” pays if you can’t do your specific job. Most super default policies are “any occupation.” This is why TPD complaints to AFCA rose 43% in 2025.

My claim was denied. What do I do?

Lodge a free complaint with AFCA at afca.org.au. There’s a 6-year limit from the decision date. AFCA overturns many insurer decisions — especially where TPD definitions are ambiguous or disclosure was inadequate.

---

Sources

1. APRA, Life insurance financial statistics 2023–24. apra.gov.au
2. ASFA, Super insurance review: unclaimed benefits analysis, 2026. superannuation.asn.au
3. Treasury, Protecting Your Super Package — PMIF reform factsheet, 2019. treasury.gov.au
4. ASIC, Report: Insurance in superannuation member outcomes. asic.gov.au
5. AFCA, Annual Review 2024–25 — insurance complaints data. afca.org.au