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MERLIN RISK WIZ • INSURANCE GUIDE
What would your family do the month after you didn't come home?
Not the grief. The money. The mortgage repayment still due on the 15th. The school fees in February. The question your partner would have to answer alone at 11pm — can we still afford to stay here? Term life cover is the answer you give them now, before they ever have to ask.
70%
of Australian families are underinsured relative to their actual financial obligations
FSC / KPMG Underinsurance Research
$189,000
median default super life cover — vs. median mortgage of $611K+
APRA / ABS Housing Finance, 2024
91%
life claim acceptance rate through a financial adviser vs. 86% direct
APRA Life Insurance Claims Statistics, Jun 2023
Everyone knows they should have life insurance. Almost no one knows what they actually have — or whether it would be nearly enough.
The default life cover most Australians carry through their super fund was set on the day they joined — often in their 20s, for a flat sum that has nothing to do with the mortgage they took out at 35, the school fees they're committed to, or the income their family has built its life around. It's not a strategy. It's a default.
The most important thing we do at Merlin isn't finding you cheap cover. It's sitting down — for 30 minutes, at no cost — and running the actual numbers. What does your family need if you're not in it? What do you already have? What's the gap? What does closing it cost? Usually, far less than people expect. The hardest part is having the conversation. We make that part easy.
THE BASICS
How Term Life cover works
Term life insurance pays a one-off lump sum to your nominated beneficiary — or your estate — if you die during the policy period. In most policies, this benefit can also be paid early if you are diagnosed as terminally ill with a life expectancy of less than 12 to 24 months, depending on the insurer.
That's it. There is no investment component, no cash value, no complexity. You pay a premium — monthly or annually. If you die, the money goes to the people you've named. If you don't, you have the extraordinary privilege of never needing to use it. The simplicity is the point.
What is not simple is: knowing how much cover you actually need, where to hold it (inside or outside super), what the tax treatment means for your beneficiaries, and which insurer is most likely to pay a claim without argument. That's where Merlin earns its place.
The Two Things That Determine Your Cover's Value
Sum Insured
How much — and why most Australians have it wrong
Your sum insured should be enough to clear every debt, replace your income for a meaningful period, fund your children's education, and give your partner time to restructure — without panic, without selling assets, without a second income they didn't plan to need.
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Outstanding mortgage and all other debts
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7–10 years of income replacement (invested to generate returns)
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Future school and university fees per child
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Childcare or home support cost
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Default super cover rarely reflects any of this
Ownership Structure
Where you hold it changes everything for your family
Self-owned cover pays your nominated beneficiary directly, tax-free. Super-owned cover is paid into your fund, must satisfy trustee discretion, and may be partially taxable to certain beneficiaries. The right structure isn't always obvious.
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Self-owned: tax-free payout, direct to nominated person
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Super-owned: premium from super, cash flow preserved
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Combined: a portion in each — often the optimal approach
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Super-owned paid to non-dependent adult children: taxed
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Super without binding nomination: trustee decides who gets it
Things worth knowing — right now
1
Your default super cover was set when you joined the fund — not when you bought your house.
2
Terminal illness benefit pays your full cover while you're still alive — it's not just a death payment.
3
Super death benefit paid to an adult non-dependent child can be taxed at up to 17% — often thousands lost.
4
Binding death benefit nominations expire every three years. Most people's have lapsed.
5
The suicide exclusion period is 13 months — after that, most policies cover it. Know what your policy says.
The number most people miss
Your super's default cover is probably less than your car loan interest
We ask every new client to pull up their super statement before their first Merlin appointment. The median default death benefit for a 40-year-old Australian in a large industry fund is around $189,000 — a number set by actuarial tables, not by your mortgage, your income, or the school your kids attend. For the majority of our clients, that figure doesn't clear six months of their mortgage. It would not give their family a year of breathing room. It would give them a month, maybe two, before the hard decisions start.
This isn't the fund's fault. Default cover is designed to be affordable for everyone, not adequate for you specifically. Adequacy requires a conversation. We're ready to have it.
POLICY OWNERSHIP STRATEGY
Three Ways to Hold Your Life Cover
The question of where you hold your life cover is one of the most consequential decisions in your insurance strategy — affecting tax treatment, beneficiary certainty, cash flow, and what actually happens at claim time. None of the three structures is universally superior. The right one depends on your personal situation.
Who owns the policy
Your superannuation fund (trustee)
Benefit payment
Paid into super fund; trustee distributes as death benefit
Premium deductibility
Tax-deductible to the super fund — reduces tax on fund earnings
Tax on benefit
Depends on beneficiary: tax-free for dependants; taxed for adult children
Critical: who receives the money, and how much tax?
A super death benefit paid to a financial dependant (spouse, children under 18, anyone in an interdependency relationship) is tax-free. Paid to an adult child who is not financially dependent on you? It can be taxed at up to 17% (15% + 2% Medicare levy on the taxable component). For a $1.5M benefit, that is up to $255,000 to the ATO — not your child. Always set up a valid binding death benefit nomination, and review it every three years or after any life event. Without a binding nomination, your super trustee decides who gets the money.
THE FEATURE MOST PEOPLE OVERLOOK
The Terminal Illness Benefit — Paid While You're Still Here
Most Australians think of life insurance as something that pays when they're gone. What they don't know is that most term life policies also pay early — in full — if you're diagnosed as terminally ill with a life expectancy of less than 12 months (or 24 months, depending on the insurer).
This means the money — your full sum insured — arrives while you can still use it. While you can still see the mortgage cleared. While you can still set up the education funds, record the voice messages, write the letters. It means your family doesn't have to wait until after you're gone to be financially safe. You get to know they're okay.
How the Terminal Illness Benefit Works
1. Diagnosis
Two medical specialists confirm a terminal diagnosis with a prognosis of less than 12 or 24 months, depending on your policy's definition
2. Claim lodged
Your adviser lodges the terminal illness claim — often within 30–60 days of diagnosis. Most insurers process as priority given the time-sensitive nature
3. Benefit payment
The entire sum insured is paid — to you, while you're alive. Not to your estate. Not later. Now. To use as you choose, with the people you love.
4. What it gives you
Mortgage cleared. Education funds set. The financial crisis averted. The remaining time — however long — can be about people, not panic.
The terminal illness benefit is the most human feature in insurance
We have sat in rooms with families who received this benefit while their loved one was still alive. The relief is not financial. It's the removal of a weight that would otherwise crush everything in the months ahead. The person who is dying gets to spend their energy on being present, not on managing a financial crisis from a hospital bed. Their family gets to be a family. Not an emergency committee.
Check whether your current policy includes this benefit — and what the prognosis threshold is. 12 months vs 24 months is a significant difference in a terminal diagnosis. A 24-month window covers far more conditions, far earlier.
WHAT THE LUMP SUM DOES
Six ways a lump sum changes everything
A life insurance payment isn't just a number. It's the removal of every financial decision that would otherwise consume your family's first year of grief. It is time — to breathe, to adjust, to not make desperate choices under pressure.
Without the right cover in place...
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Default super cover often doesn't clear the mortgage — the family must sell
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The surviving partner returns to full-time work immediately — often while still grieving
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Children change schools, activities, friendships — their world is disrupted twice
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Retirement savings are drawn down to cover living costs — the second life is permanently diminished
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Estates become sites of family conflict when beneficiary nominations are missing or outdated
With Life cover…
Clear the Mortgage
The single most important outcome for most families. A debt-free home is stability — the one thing that cannot be disrupted by grief, income loss, or circumstance.
Income Stream
Invest the lump sum to generate ongoing income to keep supporting your family's living expenses
Eliminate All Debt
Car loans, credit cards, personal debts, business liabilities. Your family inherits assets — not obligations.
Fund Practical Care
Childcare, after-school care, a support person: the daily logistics and costs of a single-parent family are significant.
Equalise Your Estate
Life insurance can be structured to treat multiple beneficiaries fairly — so the family home doesn't have to be sold to create equal inheritances.
Children's Education
Your children's school fees, tutoring, university — all of it committed to and funded, regardless of what came before. Their trajectory doesn't have to change.
BEFORE YOU DECIDE
Important considerations
These include:
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For self owned life cover, if you do not nominate a beneficiary, the proceeds will form part of your estate and will be distributed in accordance with your Will. Directing proceeds to your estate may provide the opportunity to use one or more testamentary trusts to provide a tax-effective future income for dependants particularly if you have young children or grandchildren.
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Funding the premiums from your superannuation balance will reduce the growth of your retirement savings unless you make additional contributions to offset the premiums. These contributions will count towards your contribution caps.
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Where your sum insured is large, not all of the benefit may be able to be taken as a tax-effective income stream by your beneficiaries.
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No death benefit will be paid if death is due to suicide in the first 13 months, or if you do not fully disclose all required information.
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To be eligible for payment as ‘terminally ill’ a doctor must certify you have less than a set number of months to live, usually 12 or 24 months.
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It’s important to seek professional legal advice and consider your overall estate planning position to ensure your wishes are carried out upon your death.
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Before selecting an insurance policy, you should always carefully read the Product Disclosure Statement (PDS) and policy document, and once you have selected an insurance policy, you should keep these documents in a safe place.
Next Read:
LIFE COVER FAQs
Common questions about Life cover
MERLIN WEALTH & WELLNESS WIZ
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