Most Australians have life insurance automatically through their super. It’s helpful, it’s affordable, and it gives many people cover they may not have arranged on their own. But there’s a quiet misconception that this default insurance will look after everything if something goes wrong.
For many households, it won’t come close.
Default cover in super is designed as a simple starting point. Premiums are kept low so your retirement savings aren’t eroded too quickly. The trade off is that the insured amounts are modest. The typical default life cover is around $135,000. Compare that to the average new mortgage, which is now over $650,000, and you can already see the gap.
Why the gap is so big
Three things explain why default cover often falls short.
1. Cover amounts are budget based, not need based
Super funds keep premiums low deliberately. This keeps insurance affordable for most members, but it means insured amounts are conservative by design. Default cover usually peaks in your 30s or 40s and tapers as you age, regardless of your financial situation.
2. Average debts have grown, but default cover hasn’t
Mortgage balances have grown significantly over the past decade, but default insurance levels have barely shifted. When your debt sits four or five times higher than your insurance payout, it becomes clear the policy isn’t built to keep up with real world household needs.
3. Life is more complicated than a single payout
If something happened to you, the people who rely on you would need more than one lump sum. They may need help with:
- Clearing or reducing the mortgage
- Replacing income for a period
- Supporting children
- Managing day to day living expenses
- Covering medical or recovery costs
- Having a small cash buffer
Default cover usually gets through only the first layer of this list.
A quick sense check: how far would $135,000 go?
For a household spending around $70,000 a year, a payout in the typical default range might cover a year or two of living costs once mortgage needs are addressed. It certainly helps, but it doesn’t support a family through the long haul.
If you have young children, a partner who relies on your income, or a mortgage you want protected, it’s worth asking:
What would I want this money to achieve if I wasn’t here?
And does my current super cover actually stretch that far?
What the value of super can and cannot do
Some people wonder whether they could rely on their super balance instead of adjusting insurance. It’s possible, but there are trade offs.
Using super now
Withdrawing from super due to death or disability can provide quick access to cash, but those funds were meant for retirement. Using them early reduces the amount available later, often significantly.
Leaving super intact
One of the key purposes of life insurance is to preserve your retirement savings. If a lump sum from insurance can handle debt and income needs, it can prevent a surviving partner from needing to drain their super just to stay afloat.
Balancing short term needs with long term security is a key part of reviewing your insurance.
Different needs at different ages
Most shortfalls occur between your late 20s and late 40s, when people are juggling mortgages, young families, and peak earning years. At this life stage, default cover falls well short of what a family would reasonably need.
For example, average mortgage balances for people aged 30 to 49 often sit above $400,000, while default life cover typically sits between $120,000 and $150,000 and reduces with age. The mismatch is obvious.
Why a quick review can make a big difference
You don’t need to be an expert to get a feel for whether your cover is suitable. Start with a few simple questions:
- Would my current cover clear the mortgage?
- Would my partner need time to adjust or return to work?
- Do I have children who rely on my income?
- Would I want to provide a buffer for emergencies or future schooling needs?
- How long would I want my family to have breathing space?
Even small adjustments can make a meaningful difference.
What about TPD and Income Protection?
Although this article focuses mainly on life cover, it’s worth mentioning:
- Total and Permanent Disability (TPD) cover inside super often mirrors the level of life cover, and is still usually modest compared with what someone may need if they could never work again.
- Income Protection, if it is included, generally pays around 70 to 75 percent of your income for a limited period, often up to two years. It can help with temporary illnesses or injuries but won’t replace long term income for more serious conditions.
Both deserve separate, detailed guides, which we will cover elsewhere.
If nothing else, be aware of what you have
The biggest risk is not just having low cover. It’s not knowing you have low cover. Millions of Australians pay for insurance inside their super each year without realising what it would actually pay or how it fits their situation.
A quick look at your super statement or member portal will usually show:
- Your current cover amounts
- Whether the cover tapers with age
- What you are paying for it
- Whether you can increase or personalise it
If you are unsure, an adviser can help you understand your options before making changes.
The bottom line
Default insurance in super is a valuable foundation, but for many Australians it only covers one part of the picture. Once you know what you have and compare it with what you would want covered, you can make a clearer decision about increasing or supplementing your cover.
Taking a moment to check it now could make a significant difference for the people who rely on you.
References
ABS Lending Indicators
https://www.abs.gov.au/statistics/economy/finance/lending-indicators/latest-release
NAB Australian Wellbeing Survey (Q2 2025)
https://news.nab.com.au/content/dam/nab-news/documents/nab-australian-wellbeing-survey-q2-2025.pdf
