What happens to your super and insurance if you pass away?

Your super is there for your retirement – but what happens if you pass away? Here’s what you need to know about setting up your beneficiaries, so your super will go to the people you care for most. 

Super is a big investment to help support you throughout your retirement. To protect your retirement savings, there are certain rules about when you can access it. This extends to who is eligible to receive it if you pass away. 

Most super funds let you nominate who you would like the balance of your fund to go to in the event of your death, provided the nominated person is eligible to receive it under superannuation law. Here’s how the death benefit payment from super (and insurance held through super) is treated – and how you can make sure it goes to those you want it to. 

Who can receive your super money? 

Your super must be paid to either a dependant or your legal personal representative (also known as your estate).

Under superannuation law, a dependant is defined as: 

• your spouse or de facto spouse 
• your child or children, or 
• someone who was in an interdependency relationship with you. 

An interdependency relationship is where two people have a close personal relationship, live together and provide each other with financial support, domestic support and personal care. 

What about life insurance? 

If you hold life insurance as part of your super, the policy is owned by the trustee of the super fund on your behalf. This means that if you pass away while the cover is active, the insurer pays a lump sum to the trustee for the value of the sum insured. Then, the trustee pays this amount into your super account, the balance of which will be paid out to your nominated beneficiary or estate. 

How to nominate a beneficiary 

Generally, the trustee will pay your death benefit to the person or people you nominate – or to your legal personal representative (your estate). Depending on the product you have, there are two different types of nominations you can make: binding or non-binding. 

• A binding nomination is where the trustee must pay your benefit to the beneficiary you choose, provided they are eligible to receive it. This type of nomination requires a bit more paperwork but provides greater certainty over the payment. 
• A non-binding nomination indicates to the trustee who you would like your benefit paid to, but they will use their discretion to decide who the most appropriate beneficiaries are and who the benefits should go to.  

For example, you can use a binding nomination to ensure that the benefit goes to, for example, your children from a former relationship. Or you can use it to direct the benefit to your estate, where it can be paid out according to your will. 

Binding nominations can be non-lapsing or lapsing dependant on the product. If you choose a non-lapsing nomination, remember to review it every three years. The super fund will be obliged to pay it to the nominated person, even if your circumstances change or the relationship breaks down. For example, if you nominate your partner as your binding beneficiary and then you divorce, the trustee will still be obliged to pay the benefit to your ex-spouse. 

Some dependants may be eligible to receive the super death benefit as an income stream, rather than a lump sum. However, this option is not available to children over age 25, unless they have a permanent disability. 

How will the benefit be taxed? 

Your super death benefit may incur tax. How much tax the beneficiary has to pay will depend on a number of different factors, that will be relevant to your situation and theirs.   

We recommend that you discuss this with your tax adviser or accountant to determine the best course of action, as everyone’s circumstances are different.   

^{Please note, the information in this article is factual in nature only. It may not apply to your current personal circumstances and is not intended to represent or be a substitute for professional financial advice. It is recommended that you consult with a financial adviser before making a decision.}