Personal Insurance: Know Your Cover Before You Need It
Personal insurance is one of those topics we'd rather not bring up. It lives in the awkward drawer next to the one for booking a colonoscopy. The ‘I’ll get to it later’ category.
But done right, it does one quietly powerful thing: it keeps a health problem from becoming a money problem too. So when the hard times come, you're dealing with one crisis, not two.
Table of Contents
1. We insure the house, but not ourselves
We insure the house without a second thought. More than 95% of Australian homeowners hold home insurance, even though the odds of ever losing the place to fire or flood are mercifully small.
Then we under-insure the person who actually pays for the house. Only about 1 in 3 working Australians hold income protection (Lifewise), while around 1 in 8 of us are forced out of work early by illness or injury (ABS data).
Across the country, roughly 3.4 million Australians are short on income protection, and around a million on death and TPD cover (Council of Australian Life Insurers). When a gap like that shows up, it tends to show up at the worst possible moment, when a family is already dealing with a death, a serious illness or a life-changing injury.
Here's the bit we tend to skip past: a health event isn't the rare bolt from the blue we imagine it to be.
Around 2 in 5 Australians will be diagnosed with cancer by age 85
20,000 Australians under 50 diagnosed with cancer each year
Heart attacks and strokes add up to around 270 events every single day between them.
None of this is meant to scare you. It's simply the maths most of us would rather not do: across a full working life, the odds of something landing on you or your partner are real, not remote.
2. The four types of personal insurance (and who needs them)
There are four main types of personal cover. Two pay a lump sum, one replaces your income, and one pays out on diagnosis. In plain English:
Life cover (death cover) pays a lump sum to the people you love if you die, or if you're diagnosed as terminally ill. It clears the mortgage, replaces your income for the household, and keeps your family's world steady at the worst possible time.
TPD (total and permanent disability) pays a lump sum if illness or injury permanently stops you working. Watch the definition here. "Own occupation" means you can't do your specific job, "any occupation" means you can't do any job you're suited to. Own occupation is broader cover and costs more.
Income protection pays a monthly benefit, usually up to 70% of your income, if illness or injury keeps you off work for a while. This is the wage-replacement one. It pays the bills while you get back on your feet.
Trauma (critical illness) pays a lump sum when you're diagnosed with a listed serious condition, think cancer, heart attack or stroke, whether or not you can still work. It buys you breathing room to focus on getting well instead of the mortgage.
Most people don't need all four, and the right mix shifts as life changes. Here's a rough guide to who usually needs what:
| Cover type | What it does | Inside or outside super? | Who usually needs it | Who may not |
|---|---|---|---|---|
| Life (death) | Lump sum to your family if you die or are terminally ill | Both |
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| TPD | Lump sum if you're permanently unable to work | Both |
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| Income protection | Monthly payment (up to ~70% of income) while illness or injury keeps you off work | Both |
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| Trauma | Lump sum on diagnosis of a serious illness, regardless of work | Outside only |
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TPD comes in two flavours
"Own occupation" cover pays if you can no longer work in your specific job.
"Any occupation" cover only pays if you can't work in any job you're reasonably suited to by your education, training or experience.
Picture a working electrician who loses the use of a hand. With "own occupation" cover, they're paid, because they can't be an electrician any more, full stop.
With "any occupation" cover, the insurer can argue they could still do desk-based work like quoting jobs or teaching at TAFE, and knock the claim back.
Own occupation" is the broader, easier-to-claim cover, which is why it costs more. It also can't be held inside super, so that slice has to sit outside.
Income Protection tax-deductibility
Income protection premiums are usually tax-deductible when you pay them from your own cash flow, but not when they're paid from inside super. Trauma premiums aren't deductible either way.
3. When it happened to one of us
Our Practice Manager, Nicole, was 36 when she was diagnosed with bowel cancer. Her son wasn't even one yet.
The surgery was major. Surgeons removed a fifth of her bowel and the surrounding lymph nodes, and she was wiped out for months. Going back to work simply wasn't an option.
Nicole had income protection insurance, which meant their household wasn't left trying to survive on one income while Nicole recovered.
She didn't have to think about money. She could just focus on getting well.
Four years on, she's in remission and still cheerfully nags everyone she meets to book their colonoscopy.
4. Default cover vs underwritten cover
Default Cover
Most Australians get their first insurance automatically, through super. It's called default or "group" cover. No medical, no forms, it's just there. That's the good news.
The catch is that default cover is a one-size-fits-most amount. It's often well short of what a family actually needs, and it can quietly switch off.
By law, super funds cancel insurance after 16 months with no contributions, and many cancel it if your balance drops too low. Cover also isn't automatic for new members under 25 or with balances under $6,000 (MoneySmart). Change jobs, open a new fund, leave the old one sitting, and your cover can lapse without you ever noticing.
We had a couple come to us, certain they were covered through super. He'd changed jobs a couple of years back and rolled into a new fund, leaving the old account behind. The old account went quiet, the cover was cancelled, and the new fund's default amount was a fraction of their mortgage. They found out in a review, which is a far better place to find out than at claim time.
Underwritten cover
You need to apply for underwritten cover. The insurer assesses your health, job and history up front, and you agree on an amount that fits your life. It costs a bit more and takes more effort, but you know exactly what you're covered for, and there are far fewer nasty surprises when you claim.
That said, if a health condition means underwritten cover is off the table, default is a genuinely good fallback. Some people even keep a small, low-cost super account open purely to hold default cover they couldn't get any other way.
5. How the application and underwriting process works
Underwriting is just the insurer working out the risk before they say yes.
Pre-assessment
Before any formal application, your adviser can run a pre-assessment, an informal check with insurers using your health details, to see who's likely to offer cover and on what terms. This is gold if you've got a health history, because it lets you shop around without a string of formal applications sitting on your record.
The application
Health questions, lifestyle, occupation, and for income protection, usually some evidence of your income.
Telehealth or tele-interview
Instead of wrestling with paper forms, many insurers now run a phone interview with a trained nurse or interviewer who walks through your medical history with you. It's usually quicker, more accurate, and takes the guesswork out of those long questionnaires.
Sometimes they'll ask for a blood test, a medical, or a report from your GP.
The outcome
This might be standard terms, a loading (a higher premium), an exclusion (a particular condition left out), or occasionally a decline. A good adviser knows which insurers tend to look more kindly on which conditions, which can make a real difference to the price and the terms you're offered.
6. Why full disclosure matters
The single most important rule in all of this: tell the truth, the whole truth. When you apply, you have a legal duty to take reasonable care not to misrepresent yourself.
Leaving something out to score a cheaper premium or dodge an awkward question is the costliest shortcut in insurance. If you don't disclose something relevant and it surfaces later, the insurer can reduce the payout, add an exclusion, or knock the claim back altogether.
And here's the painful part. You don't find out there's a problem when you apply. You find out when your family lodges a claim, at the worst possible moment.
So mention everything. The old back injury, the medication, the counselling, the family history. It might cost a little more, or it might cost nothing at all. But it's what makes the policy actually pay when it's needed. Disclosure isn't the fine print. It's the whole point.
7. Life events that can let you increase your cover
Some policies, especially default cover in super, let you bump up your cover after certain life events without a full medical. It's often called a "life events" or "guaranteed future insurability" feature.
Typical triggers include:
Marriage or a new de facto relationship
Having or adopting a child
Taking out or increasing a mortgage
A child starting secondary school
A significant pay rise
There's always a catch, and here it is: it's not guaranteed, it's not on every policy, the increase is usually capped, and there are time limits (often you have to apply within 30 to 60 days of the event). Some insurers still ask a few questions.
Why it matters: your need for cover grows exactly when your responsibilities grow. A new baby or a bigger mortgage is precisely when a gap tends to open up. If your policy has this feature, use it, and use it at the right time.
8. Keep your beneficiaries up to date
Your insurance, especially cover held inside super, doesn't automatically go where your will says. It goes to whoever you've nominated, or to whoever the fund decides if you haven't nominated anyone.
There are two kinds of nomination. A non-binding nomination is a preference the trustee can override. A binding nomination legally directs where the money goes, but the common lapsing version expires (often every three years) and needs re-signing.
We once reviewed a client's super and found a binding nomination still naming an ex-partner, years after the divorce. Had anything happened, the payout could have gone to the ex instead of the kids. It took ten minutes to fix. That ten minutes could have been the difference between the right people and the wrong people receiving the money.
Update your nominations after any big change: marriage, divorce, separation, a new relationship, a new baby, or a death in the family. Life moves, and your paperwork should keep up with it. This is also where insurance and estate planning meet, so it's worth having that conversation in one go.
9. Know what you're covered for
A surprising number of people hold cover, often for years, and never claim on it, simply because they don't realise it's there. A claimable event comes and goes, and the policy that could have helped just sits quietly in the background.
Take Amber's father-in-law. When he had a heart attack, insurance was the last thing on anyone's mind. But Amber knew he held trauma cover, so she helped the family put a claim in. The payout cleared a big chunk of their mortgage, right when they needed the breathing room most.
The reassuring part is that there's no expiry while a policy is active. Even an event that has already happened can be worth a second look. We've also seen a client receive a back-paid lump sum for time they'd already taken off work, well after the fact.
10. When to stop paying for insurance
Insurance isn't forever, and it shouldn't be. The goal is to be covered while you've got people and debts relying on you, then wind it back as that need fades.
Default cover phases out by age anyway. TPD inside super usually ends around 65, and life cover usually ends around 70 (MoneySmart). Premiums also climb steeply as you get older, which is simply the insurer pricing in the obvious.
With default cover especially, the premiums tend to creep up while the cover amount quietly shrinks as you age, until it cuts out altogether. Underwritten cover is different. It stays exactly as agreed for as long as you keep paying the premiums.
You may genuinely not need cover anymore once the mortgage is gone, the kids are independent, and you've got enough in super and assets to handle whatever life throws up. At that point you're effectively self-insured, and those premiums are money that could be working harder elsewhere.
This is a real conversation for people 3 to 10 years out from retirement. Keep cover long enough to protect the run home, then turn it off at the right time rather than paying for years you no longer need.
Your 10-minute insurance cover check
This Budget moved a lot of the financial furniture. While the reforms still need to pass through parliament, the smart move is to get on the front foot, especially if any of these sound like you:
You've got investments with significant unrealised gains (shares, an investment property, a business you're planning to sell)
Your super balance is approaching $3 million
You've got a family discretionary trust
You're thinking about buying an investment property
cover check
The bottom line on personal insurance
Personal insurance comes down to three things: knowing exactly what cover you already have, making sure it's the right type, and getting the amount right. Enough to truly protect you, but not so much that you're paying higher premiums than you need to.
That's where we come in. At Firefly Financial, we'll do a full insurance assessment: working out what you're already covered for, where the gaps are, and what the right level of cover looks like for your life right now.
Ready to stop wondering and start knowing? Book a chat.
Based in Perth, Firefly Financial provides financial planning for Gen Xers and Baby Boomers, the quiet achievers and the life lovers.
Frequently Asked Questions
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Usually not on its own. Default cover in super is a set amount designed to suit the average member, and it's often well short of what's needed to clear a mortgage or replace a household income. It's a good starting point, not a finishing line. Check the amount against your actual debts and income.
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They apply to almost everything. The new CGT rules cover shares, managed funds, ETFs, investment properties, business assets, collectibles, cryptocurrency, and even pre-1985 assets. The main things NOT affected are super (including SMSFs), widely-held trusts like most managed investment trusts, and your family home (the main residence exemption still applies).
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Yes. By law, super funds cancel insurance after 16 months without contributions, and many cancel it if your balance gets too low. Changing jobs and leaving an old fund behind is the most common way people lose cover by accident. Keep your contact details current and read your statements.
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The insurer can reduce your payout, apply an exclusion, or decline the claim. You have a legal duty to take reasonable care not to misrepresent yourself when applying. The safest move is to disclose everything, even things that feel minor or embarrassing, so the cover holds up when it's needed.
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Default (group) cover comes automatically through super with no medical, but it's a generic amount that can change or stop. Underwritten cover is assessed up front based on your health and circumstances, so you know exactly what you're covered for and face far fewer surprises at claim time.
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Check your beneficiary nominations, especially inside super. A binding nomination legally directs the money, but lapsing ones expire (often every three years) and need re-signing. Update them after any major life change like marriage, divorce or a new baby.
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When the people and debts relying on you have fallen away: mortgage cleared, kids independent, and enough assets and super to self-fund life's surprises. Default cover also phases out with age (TPD usually around 65, life cover around 70). For many, winding cover back in the lead-up to retirement frees up money.
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Possibly. From 1 July 2028, a 30% minimum tax applies to taxable income retained in discretionary trusts. There's a three-year rollover window from 1 July 2027 to restructure without triggering CGT. Whether to restructure depends on what the trust holds and why it exists. We'd want to talk this through with you and your accountant.
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Yes. WA government super (GESB) has its own insurance arrangements that don't always work like a standard MySuper fund. If you're a GESB member, it's worth checking exactly what you hold and how it's structured, because the default settings and rules differ.
Sources and useful links
ASIC MoneySmart, Insurance through super: moneysmart.gov.au
Council of Australian Life Insurers (CALI): cali.org.au
Financial Services Council, Life Underinsurance Gap Research: fsc.org.au
APRA, Life insurance claims and disputes statistics: apra.gov.au
Lifewise, Underinsurance in Australia: lifewise.org.au
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This information is current as at 1 May 2026.
Kalfocus Pty Ltd AR No. 463978 is a Corporate Authorised Representative of Firefly Financial Pty Ltd AFSL No. 700033, ABN 88 687 477 612. General Advice Warning: Any advice in this article is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions.