Worked Examples and Checklists
How much do insurance premiums in super really cost your retirement?
Work out how life, TPD and income protection premiums deducted from super reduce your retirement balance, including lost earnings, with worked examples.
Insurance premiums deducted from your super cost more than the premiums themselves, because every dollar removed also loses its future investment earnings. Illustratively, $60 a month for 30 years at a 7% return reduces your balance at retirement by about $73,200, more than three times the $21,600 actually paid in premiums. That does not mean the cover is poor value: if you have dependants or a mortgage, cover in super is often the cheapest way to hold it. It means you should hold the cover you need, in one place, and stop paying for duplicates.
This guide is part of the worked examples section. All returns and premiums are illustrative, not forecasts.
Where to find your premium
- Your annual statement shows insurance premiums deducted during the year.
- Your fund's online account usually shows cover amounts and the current weekly or monthly cost.
- The fund's insurance guide shows the premium rates by age and occupation.
Add death, TPD and income protection premiums together for the total monthly cost.
The calculation
The cost of cover in super calculator treats each monthly premium as money not invested and compounds it at your assumed return:
Balance reduction = sum of each premium × (1 + monthly return) ^ remaining months
Earnings in an accumulation account are taxed at up to 15%, so the calculator also shows a simplified after-tax figure.
Illustrative results
| Monthly premium | Years to retirement | Return | Premiums paid | Balance reduction (before tax) | After 15% tax on earnings |
|---|---|---|---|---|---|
| $60 | 30 | 7% | $21,600 | $73,200 | $65,500 |
| $60 | 20 | 7% | $14,400 | $31,300 | $28,700 |
| $100 | 35 | 7% | $42,000 | $180,100 | $159,400 |
| $45 | 25 | 6% | $13,500 | $31,200 | $28,500 |
The after-tax column for the first row: earnings forgone are $73,200 − $21,600 = $51,600. After 15% tax, $51,600 × 0.85 = $43,860. Add back the $21,600 premiums: $65,460, rounded to $65,500.
Worked example: two accounts, duplicated cover
Illustrative: Ben, 30, has two super accounts, each with default death and TPD cover.
- Fund A (current job): $280,000 death and TPD, $9 a week (about $39 a month).
- Fund B (previous job, still receiving occasional contributions from a casual role): $180,000 death and TPD, $7 a week (about $30 a month).
Total cost $69 a month. Ben has no children and a partner who works full-time. A needs calculation (see how much life cover do I need) suggests about $300,000 of death and TPD is enough.
Option: keep Fund A's cover, apply for a modest increase if needed, and consolidate Fund B. If Ben stops paying $30 a month from age 30 to 67, at 7% the calculator shows his balance at retirement would be roughly $62,900 higher before tax (444 months of $30 compounded monthly), using the same method as the table. He keeps the cover he needs and drops the duplicate.
But check first:
- Does Fund B have income protection or different definitions Ben would lose?
- Was Fund A's cover granted without health questions, so it cannot be refused later?
- Is Ben's health such that he could get extra cover if needed later?
See the cover review checklist before consolidating.
When the cost is clearly worth paying
- A parent with young children and a mortgage, where the household could not cope financially without the cover.
- Someone in a manual job relying on TPD and income protection.
- Someone who cannot get retail cover because of health, and whose super cover was issued without health questions.
When to review the cost
- No dependants and no debts: consider reducing death cover.
- Duplicate accounts: consolidate, keeping the best cover.
- Near retirement: death cover need often falls as the mortgage is repaid and children are independent. Many funds reduce cover with age anyway.
- Low balance: the opt-in rules already stop default cover for balances that have not reached $6,000, but premiums can still be a large share of a small balance.
Inside vs outside: the cash-flow point
Paying through super does not cost your take-home pay today, and the money came from concessionally taxed contributions. For people on higher incomes, an equivalent retail policy paid from take-home pay could cost more in after-tax dollars, except for deductible income protection. The question is not whether super cover costs something, but whether it is the cheapest way to hold the cover you need. See cover inside super versus retail.
Topping up the balance
If you are worried about the effect on your balance, you could make extra concessional contributions to offset premiums, within the concessional contributions cap. Check the current cap and carry-forward rules on the ATO website before contributing.
Frequently asked questions
Does my fund claim a tax deduction for the premiums?
Generally yes. The fund deducts premiums against its taxable income, which can reduce the contributions tax it pays. That benefit is reflected in fund pricing rather than credited to your account in every fund.
Do premiums keep rising with age?
Usually. Most fund cover is priced by age, and some funds reduce cover with age so the premium does not rise as fast.
Can I switch the cover off?
Yes, through your fund's online account or a form. Make sure you have other cover first if you need it.
Sources
- ATO — finding super, consolidating accounts, contribution caps
- Moneysmart — superannuation calculator and insurance in super
- APRA — super fund statistics and insurance in super
