TL;DR
In Australia, the four pillars of personal insurance are: Life cover, TPD (Total and Permanent Disability), Income Protection, and Trauma (Critical Illness). The first three are commonly held inside superannuation; trauma is almost always held outside super. Private health insurance is partly a tax decision (MLS / LHC loading) and partly a service decision. Skip: whole-of-life policies, "funeral plans" sold cold, and accident-only narrow products.
Two Different Problems, Two Different Tools
Insurance solves two problems:
- Income replacement for dependents if you die or become permanently disabled.
- Catastrophic medical and lost-income costs during illness, regardless of age.
Medicare gives you the baseline for emergency and major medical care. Income protection covers what Medicare doesn't — your salary while you're unable to work.
1. Life Insurance (Death Cover)
Who needs it: anyone with dependents (spouse, kids, dependent parents) or significant joint debt.
Who doesn't: singles with no dependents, retirees whose kids are independent and mortgage paid off.
How much: 10–12× annual income, plus outstanding mortgage. A 35-year-old earning A$120K with a A$500K mortgage and two young kids: A$1.5–A$2M of cover.
Where to hold it:
- Inside super — premiums paid from your super balance, tax-effective, but reduces your retirement balance. Default cover from your super fund is often inadequate (typically A$100K–A$300K) — increase to your actual need.
- Outside super (retail policy) — premiums paid from after-tax cash. Usually slightly more flexible policy terms; useful for people whose super balance is small.
Cost: for a 35-year-old non-smoker, A$1M of life cover runs A$30–A$70/month depending on whether held inside or outside super.
2. TPD (Total and Permanent Disability)
Who needs it: anyone with dependents or substantial debt.
What it covers: lump-sum payout if you become permanently disabled and can no longer work.
Two definitions to understand:
- "Any occupation" — payout only if you can't do any job for which you're reasonably suited. Stricter, harder to claim, cheaper. Standard inside super.
- "Own occupation" — payout if you can't do your job. Far easier to claim, more expensive. Usually held outside super.
For specialised professionals (surgeons, pilots, software engineers), "own occupation" cover is meaningfully more valuable. For workers with transferable skills, "any occupation" inside super is often adequate.
How much: typically A$500K–A$1.5M, sized to clear the mortgage and fund 5–10 years of living expenses.
3. Income Protection
Who needs it: anyone earning income, especially without significant savings.
Why this matters: Australian sick leave averages 10 days/year. Beyond that, you're on Centrelink income support (A$806/fortnight for a single, less for couples). Wholly inadequate as long-term protection.
How much: 75% of gross income (the regulatory cap as of October 2021 reforms), payable until age 65 (preferred) or for 2/5 years (cheaper but limited).
Key features:
- Waiting period — 30, 60, or 90 days before payouts begin. Longer waiting period = lower premium. Match to your employer sick leave + emergency fund.
- Benefit period — to age 65 vs 2- or 5-year limited. To-65 is meaningfully more valuable but ~50% more expensive.
- Definition — "own occupation" preferred, but post-2021 reforms have changed what's available.
Where to hold it:
- Inside super — premiums paid from super balance, but post-2021 reforms made many richer features unavailable inside super (e.g., no agreed-value contracts, lower benefit periods).
- Outside super — better contract terms, premium is 100% tax-deductible against income (a meaningful benefit). For most working professionals, IP held outside super has become the more attractive option since 2021.
Cost: for a 35-year-old non-smoker office worker, IP at A$8,000/month to age 65 typically runs A$60–A$130/month outside super, or roughly half that inside super (with weaker contract).
4. Trauma / Critical Illness
Who needs it: anyone with dependents and limited savings.
What it covers: lump sum on diagnosis of one of 30–60 listed conditions (cancer, heart attack, stroke, MS, kidney failure, paralysis, etc.). Used to clear debt, fund treatment, or replace lost income during recovery.
How much: typically A$200K–A$500K, sized to mortgage balance or 1–2 years of living expenses.
Cannot be held inside super (since 2014). Hold as an outside-super policy.
Cost: roughly A$50–A$150/month for A$300K cover at age 35 non-smoker.
5. Private Health Insurance (Hospital + Extras)
Who genuinely benefits:
- High earners (over A$93K single / A$186K couple) — Medicare Levy Surcharge of 1–1.5% on taxable income makes hospital cover effectively free or even net-positive in pure tax terms.
- Anyone who values choice of doctor, choice of hospital, or shorter elective surgery wait times.
- Anyone over 31 who hasn't yet held continuous hospital cover — Lifetime Health Cover (LHC) loading adds 2% per year to your future premium for every year you delay above age 30, capped at 70% loading.
The tax angle:
- Medicare Levy (2% of taxable income) — applies to most.
- Medicare Levy Surcharge (MLS) — additional 1.0–1.5% if your income exceeds the threshold and you don't have private hospital cover.
- For a household earning A$200K, MLS = A$2,000/year. Equivalent hospital cover often costs A$2,500–A$3,500/year — close to break-even, with the bonus of actual coverage.
Hospital vs Extras:
- Hospital cover — addresses the MLS and gives elective surgery flexibility. Generally worth it for higher earners.
- Extras (general treatment) — dental, optical, physio. Usually a poor financial deal vs paying out of pocket; only worthwhile if you reliably use the benefits.
What to Skip
Whole-of-life or "permanent" insurance. The Australian market for these has shrunk because they're transparent value-destroyers vs term + investing.
Funeral plans sold cold. ASIC has repeatedly flagged predatory funeral plan sales. Earmarking A$8K–A$12K in a savings account is simpler and cheaper.
Cancer-only or accident-only narrow policies. Comprehensive trauma cover is better.
Direct life insurance sold via TV ads to over-50s without underwriting. Premiums are 2–4× standard underwritten policies, exclusions are extensive, and value is poor for healthy buyers.
Default super insurance without checking. Most default super death/TPD cover is inadequate (A$100K–A$300K) — too low for anyone with dependents. Review your super dashboard and increase or cancel as appropriate.
The Order of Operations
- Hospital cover if you're earning over the MLS threshold and/or approaching age 30 (LHC loading).
- Life + TPD inside super at appropriate sums (review the default cover).
- Income protection outside super — most under-bought given how much of working life it protects.
- Trauma cover outside super for major condition lump-sum.
- Private health Extras only if you actually use them.
Total annual cost (excluding hospital cover) for a 35-year-old family of four: roughly A$2,500–A$5,000/year across life/TPD inside super (paid from super balance) + IP + trauma outside super.
On Disclosure
The Insurance Contracts Act 1984 requires you to disclose anything a reasonable person would consider relevant to the underwriting decision. Insurers can decline claims for material non-disclosure within the contestability period and beyond for fraud. AFCA (Australian Financial Complaints Authority) is the dispute resolution body if you believe a claim was wrongly denied.
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