What most people get wrong about industry fund insurance
Industry fund insurance is something most Australians never really think about. It sits quietly in the background, taking a few dollars from your balance each month. You probably assume it is standard, safe and ready to go if life throws something heavy at you.
But that picture might not be quite right.
Industry fund insurance can be incredibly helpful, especially if you are young, healthy and just getting started. However, it can also change without warning, reduce over time, or fail to cover the situations you thought it would.
In this Deep Dive, Phil Thompson and Skye adviser Lenny Stoncius took apart the biggest myths Australians have about their super fund cover. What they explained is simple but important. Industry fund insurance is a starting point, not a full plan.
“You cannot assume the insurance you got at twenty two still fits you at thirty five.”
How industry fund insurance actually works
Industry fund insurance is usually made up of Life cover, TPD cover and sometimes Income Protection. The structure looks simple at first, but each fund builds its own version. That means completely different sums insured, waiting periods and definitions even when the product names look identical.
This is where the confusion begins.
According to APRA, almost 12 million Australians hold some form of default insurance inside super. Yet most have never checked what they are actually covered for. Some funds automatically include TPD, some remove it by age 65 (most TPD cover finishes up at age 65, maybe change to reduce down heavily as you get older), and others do not offer TPD at all. Some include Income Protection but only for one or two years of payments.
Industry fund insurance is helpful, but it is not standard.
“We see people all the time who think they have more cover than they actually do.”
Default cover is not created equal
One of the biggest surprises for younger Australians is that two people with the same job and same age can pay completely different premiums simply because they are in different funds.
Some funds use unitised cover, where your sum insured reduces automatically as you get older. That means you can hit your thirties and suddenly the amount you are insured for is dropping precisely when your financial responsibilities are rising.
Other funds use age based cover, where your premiums increase steadily every year. The cost can feel small when you are twenty four, and then suddenly double by the time you are thirty two.
And unlike retail cover that stays the same unless you update it, your super fund can update your default cover without you ever typing a signature.
In 2023 and 2024, several major funds reduced TPD sums insured, shortened Income Protection benefit periods or removed certain definitions entirely to manage rising claim costs. Many members only found out at renewal or claim time.
This is why understanding industry fund insurance matters.
Your occupation rating could be costing you 20 to 75 percent
Most default insurance inside super uses a standard occupation rating unless you update it manually. If you work in a professional office based job but your fund still has you rated as heavy manual, your premiums could be unnecessarily high.
According to data published by several large funds, members who update their occupation rating can save between 20 percent and 75 percent on premiums.
It takes one questionnaire and a few minutes, yet most people have never done it.
“One simple occupation update can save people hundreds every year.”
Income Protection inside super is limited
While Life and TPD cover inside super can work well as a baseline, Income Protection inside super is another story.
Industry fund Income Protection usually has:
short benefit periods like 2 years
stricter definitions
mandatory links to super legislation
rules that may stop a claim if you were not working at the time you got sick or injured
APRA explains that claims inside super must follow the temporary incapacity definition under the SIS Act. If you were between jobs, on extended leave or taking a career break, you might not meet the definition even if you genuinely cannot work.
This is why advisers often keep Income Protection outside super for anyone who relies heavily on their income.
“People assume Income Protection is just there, but inside super it can be really limited.”
The biggest gap: no trauma cover and no own occupation TPD
Industry fund insurance never includes Trauma cover. This is one of the most common misconceptions. Trauma is the insurance that pays a lump sum after a serious medical diagnosis like cancer or stroke, and it does not exist inside super.
TPD inside super also uses an any occupation definition. This makes it harder to claim. If you are a nurse who injures your back, you need to prove you cannot work in any job you are suited for by training and experience, not just nursing.
A retail own occupation TPD policy, held outside super, has a significantly easier claim threshold.
This is why advisers often recommend keeping your industry fund Life and TPD, and adding more complete TPD and Trauma cover outside super.
Why relying only on default cover is risky
If you are twenty five and single with a small rental and little savings, default insurance inside super is perfect. It is cheap, automatic and can help protect you early in your career.
But once your life expands, default cover rarely expands with you.
Most Australians outgrow their industry fund insurance long before they ever check it.
Some warning signs include:
you bought a home
you have kids
you run a business
your income has increased
your fund removed or reduced your cover without you noticing
This is when combining default cover and retail cover becomes powerful.
The default cover provides a cost-effective base, and the retail cover fills the definitions and features that matter more when you have real obligations.
“Super fund insurance is a starting point. It is not everything you need.”
Key takeaway
Your industry fund insurance is helpful, automatic and often underrated. But it is also changeable, restricted by legislation and usually not enough on its own.
Knowing what you are covered for, what might be missing and what could change gives you a far stronger safety net than relying on defaults.
The goal is simple. Understand your industry fund insurance. Keep what works. Strengthen what does not.
Insurance only works if it works when you need it.
Resources
Australian Prudential Regulation Authority. Default insurance trends and super fund reporting.
Australian Securities and Investments Commission. Insurance inside super overview and consumer guidance.
https://moneysmart.gov.au/how-super-works/insurance-through-super
Australian Taxation Office. Income Protection and deductibility rules.
Super Consumers Australia. Research on underinsurance and default cover variability.
ASIC MoneySmart. Life insurance basics.
Australian Superannuation Trustees. Guidance on trustee insurance changes.