Before you go on parental leave, read this about your insurance
Parental leave and life insurance are rarely talked about in the same breath, but they probably should be. For many Australians in their 20s and 30s, having a child is the first time finances feel genuinely fragile. Income changes. Expenses jump. Sleep disappears. And insurance often slides quietly to the bottom of the list.
That silence is where people get caught out.
“Parental leave is one of the most vulnerable seasons of someone’s life financially.”
Not because people are careless. Because there is a lot going on.
Why insurance gets overlooked when a baby arrives
Most parents don’t intentionally choose to not pay attention to insurance. It just happens.
“There’s just so much else going on. Pregnancy, birth, the baby, finances in general. Insurance is important, but it’s not urgent.”
That is a risk worth mentioning. Important, but not urgent, is how gaps in coverage occur.
According to ASIC MoneySmart, most Australians hold some form of life insurance through superannuation, often without realising it. However, when income changes during parental leave, superannuation coverage changes, including high-income earners.
Paid parental leave is changing, but insurance rules are not
Government Paid Parental Leave is evolving. From 1 July 2025, superannuation contributions will be paid on government-funded parental leave. That is a meaningful step in reducing the long-term super gap for parents.
“For a long time, super wasn’t paid on parental leave. So super balances were being impacted any time someone stepped out of the workforce.”
This change helps retirement outcomes. It does not automatically protect insurance.
Insurance inside super can quietly switch off
This is where many parents are caught out.
Under the Protecting Your Super reforms, insurance inside super can be cancelled if an account becomes inactive for an extended period.
“If you don’t touch your super and there are no contributions for 12 to 16 months, insurers are required to cancel cover.”
The intention was to stop people unknowingly paying for insurance in forgotten accounts. The side effect is that parents on extended leave can lose cover they were relying on.
APRA data shows millions of Australians hold insurance through super, and most do not review it regularly. (APRA Life Insurance Statistics 2025)
The fix is simple, but only if you know it exists.
“You can opt in. It’s as simple as contacting your super fund and telling them you want to keep your insurance.”
Retail insurance behaves differently
Insurance held outside super works differently.
“Retail policies continue as long as premiums are paid. They are not affected by protecting your super rules in the same way.”
This distinction matters during parental leave, when contributions may stop but personal premiums can still be managed deliberately.
For some families, splitting insurance between super and outside super can help balance cash flow and protection. There is no one-size-fits-all answer. It depends on timing, income, and how long leave will last.
Income protection while on parental leave is misunderstood
Income protection causes the most confusion.
“If you’re not earning an income at the time, it’s unlikely you’ll receive an income protection payment. But if you’re still ill or injured when you’re due to return to work, that’s when the benefit can start.”
This is written into many policies. The waiting period often effectively runs until the scheduled return to work date.
That detail alone has caught out countless parents who assumed cover would respond immediately.
ASIC has flagged misunderstanding of income protection benefits as a common consumer issue.
TPD and caregiving roles still count
Total and Permanent Disability is not about whether you are currently working.
However, definitions matter. Policies differ between own occupation, any occupation, activities of daily living and home duties definitions.
“If someone hasn’t been working for a long period, some policies move to activities of daily living assessments.”
This is one of the reasons reviewing insurance before leave starts is far easier than trying to fix it later.
Stay-at-home parents still need cover
One of the strongest moments in the discussion comes when caregiving is reframed as financial risk.
People say their partner doesn’t need insurance because they stay at home. But if something happens to them, the impact is huge.
“If my wife wasn’t around, I’d be screwed.”
No salary, does not mean no economic value. Life and disability insurance for full-time caregivers is about protecting the functioning of the family, not replacing a payslip.
Cost concerns are real, and solvable
Money is tight during parental leave. That is not a moral failing.
“We look at how to structure premiums between super and cash flow. And adjust it as life changes.”
Insurance does not have to be perfect forever. It just needs to be appropriate now, with flexibility to evolve later.
The bigger picture
Parental leave is not just time off work. It is a financial transition.
“You’ve got the biggest debts, the least assets, and people relying on you. That’s why this stage matters.”
Parental leave and life insurance intersect whether people plan for it or not. Understanding how policies behave during this period can be the difference between cover that quietly disappears and cover that actually supports a family when something goes wrong.
Resources and references
ASIC MoneySmart – Life insurance
ASIC MoneySmart – Income protection insurance
Fair Work Ombudsman – Parental leave
Services Australia – Paid Parental Leave