Default insurance could reduce retirement savings by up to $147,800

Default insurance premiums, while often modest year-to-year, can significantly reduce retirement balances overtime, particularly as pricing differences between funds widen.

Rainmaker Information analysis reveals widening premiums and growing long-term impact for fund members.

Based on December 2025 data, superannuation funds now offer default death & TPD cover of up to $225,000 for young members on average, dropping to $58,000 for pre-retirees, as shown in the chart below.  

For a 20-year-old, the median cover costs $99 annually, rising to $410 for members aged 55. By age 65, cover falls to $180,000, while costs remain relatively high at $329 per year.

Comparing premiums alone can be misleading, as cover levels vary widely across funds.  

When premiums are based on a consistent benchmark, the price gap becomes more visible, ranging from $22 to $385 per annum for a 20-year-old, and from $40 to just under $1,900 per annum at age 65.

“Two members with identical cover can end up with very different outcomes, purely due to pricing structures,” said Dr. David Gallagher, executive director of research at Rainmaker Information.  

“The dispersion in group insurance pricing is a key driver of long-term member outcomes, but it’s often overlooked.”

To understand the long-term impact, Rainmaker Information modelled a typical accumulation scenario for a member over their working life, starting at age 25 with a $60,000 annual salary, retiring at 65, which assumes they have not made any additional contributions which might otherwise offset insurance premiums.  

Under this model, a member with no insurance premiums deducted would reach a retirement balance of $1.47 million.

Introducing insurance costs reduces that outcome to $1.46 million under the lowest-cost scenario, $1.43 million under the median-cost scenario and $1.32 million under the highest-cost scenario.

The chart below shows that this results in a $147,800 gap, or 10% of the balance at retirement, between the no-insurance baseline and the highest-cost scenario.  

Even the median-cost scenario reduces the projected balance by $43,300, or 2.9%.

“The real impact is driven by compounding, not just the premiums themselves,” said Dr. Gallagher.  

“Money deducted early in a member’s career doesn’t just reduce the aggregate balance, it removes decades of future investment growth due to earnings and compounding.”

The modelling shows that while a member in the highest-cost scenario pays $44,800 in aggregate premiums, the total retirement shortfall is $147,800, of which $103,000 is attributable to foregone investment earnings.  

Even in the lowest-cost scenario, $2,600 in premiums results in a $9,700 reduction in the member’s retirement nest egg, once compounding effects are included.

Despite the impact on aggregate superannuation balances, Rainmaker Information notes that group insurance inside of super continues to provide cost advantages compared to retail insurance.  

The research shows that members would generally pay more for equivalent cover outside of super, with savings ranging from $140 for a 40-year-old to as much as $1,200 for a 60-year-old.

A 40-year-old member would experience average savings of 38% by accessing group insurance through their super fund compared to retail insurance.

However, this advantage may narrow as we have seen some super funds implement premium increases this year, marking a significant repricing cycle for group insurance.

“Insurance in super provides members with a valuable safety net which isn’t funded from their hip pocket.” said Dr. Gallagher.  

“Historically, it has been a lower-cost way to access cover compared to retail insurance, but that equation is becoming more sensitive.”

“As premiums rise, members should consider whether the cover offered by their super fund represents value for money, given the long-term impact that insurance premiums can have on retirement balances.”