How Insurance Through Super Works
When you hold life insurance, TPD, or income protection inside your superannuation fund, the premiums are deducted from your super balance rather than from your take-home pay. This means you don't feel the cost week-to-week — but it does erode your retirement savings over time.
Most super funds offer some level of default cover automatically — typically a modest amount of life and TPD. The question for FIFO workers is whether this default cover is adequate, and whether the super-funded structure is the best option for additional cover.
Advantages of Insurance Inside Super for FIFO Workers
- No out-of-pocket cost — premiums come from super, not your pay packet
- Tax efficiency — super funds pay a 15% tax rate, which can make premiums cheaper inside super for some types of cover
- Cash flow — useful if you're servicing a large mortgage and want to minimise monthly expenses
- Employer SG contributions — if you're on a high FIFO wage, significant employer contributions may offset the premium erosion
Disadvantages of Insurance Inside Super for FIFO Workers
- Restricted TPD definitions — inside super, TPD must use an "any occupation" or similar definition by law, which is weaker than own occupation
- IP benefit period limited — income protection inside super is typically capped at a 2-year benefit period
- Payout delays — when a claim is paid, the money goes to your super trustee first, who then releases it — this can take months
- Binding nominations required — without a valid binding death benefit nomination, the trustee decides who gets your super (including life insurance proceeds)
- Erodes retirement savings — over a 20-year period, premiums can significantly reduce your super balance at retirement
If you do physically demanding work underground or offshore, own occupation TPD (only available outside super) is the definition you want. If you're permanently injured and can't return underground, an "any occupation" TPD definition inside super might not pay out — because you could theoretically do a desk job. Don't rely on super-fund TPD for high-hazard roles.
The Hybrid Approach Most FIFO Workers End Up With
Many FIFO workers end up with a combination that makes the most of both structures:
- Some life cover inside super — using employer contributions to fund a base level of cover
- Top-up life cover outside super — additional cover to meet the full amount needed, held personally
- Own occupation TPD outside super — to ensure the strongest possible definition
- IP outside super — for the full benefit period to age 65 and the tax deduction
The right split depends on your age, income, super balance, marginal tax rate, and how much monthly cash flow flexibility you have. Your Nexa adviser will work through the optimal structure with you.
Superannuation Fund Default Cover Is Not Enough
The average super fund default life cover for a FIFO worker is $200,000–$400,000. For someone earning $150,000/year with a mortgage and dependants, that's a fraction of what's needed. Don't assume your super has you covered — get it reviewed.