Life Insurance, Superannuation & Death Benefits

Life insurance death benefits

Traditional life insurance is in the form of “term” or “whole of life” cover which matures at a particular age or on death. But some hybrid or “recuperator” policies provide for unexpended benefits being paid out as a death benefit on the insured’s death.

It is essential for executors and administrators to consider all policies to determine whether any death benefit is available.

Even some income protection and critical illness policies might respond with a death benefit payment in the event of the insured’s death.

The first place for the executor or administrator to investigate is the deceased’s insurance broker.  Where there is no broker, the policy itself should be sourced from each insurer so that they can be carefully scrutinised to determine what if any benefits can be recovered for the benefit of particular beneficiaries or the estate as a whole.


Superannuation balances

Accumulated member benefits in regulated superannuation funds do not form part of the deceased's estate unless the trustee of the super fund decides to pay it to to the estate. This does not usually happen.

If the deceased has validly completed a binding beneficiary nomination, the superannuation balance will usually be paid as therein nominated, ie to named beneficiaries or the person’s estate. A non-binding nomination - as the name implies - allows the fund trustee to decide to whom it should be paid.

If there is no nomination or the nomination is non-binding, the trustee of the fund has the final decision as to the destination of funds paid to the trustees of the fund and are empowered to exercise their discretion to pay accumulated funds to a particular dependent rather than to the estate itself or for the benefit of the beneficiaries of the deceased's will.

Disappointed dependants or executors can dispute a trustee's decision with the Australian Financial Complaints Authority.

Strict time limitations apply. It is essential to seek legal advice promptly after a trustee has made an unfavourable decision so that a tribunal came can be lodged within time.

Among other things the tribunal may consider the deceased's will and other documents to ascertain any stated or implied intention of the deceased in relation to the superannuation when making its decision.

Court appeals are also available in some cases where mistakes of law are made, and have a good prospect of success if it can be shown that the trustees' discretion was exercised "in bad faith, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or irrelevantly to any sensible expectation of the settler, or without giving a real or genuine consideration to the exercise of the discretion".


Superannuation death benefits from insurance

We have already discussed benefits payable under "whole of life" and similar life insurance policies.

Membership of a regulated superannuation fund gives a member the option to take up insurance. Most members take up Total and Permanent Disability (TPD) cover which provides defined benefit cover in the event of the policyholder being unable to work. TPD usually includes a benefit payable in the event of the death of a member.

It is important for executors to investigate the type of cover provided by each insurance policy applicable to a deceased member's superannuation arrangements.

As with superannuation fund balances, a binding nomination can specify who receives the death benefit. If the deceased did not make a nomination (or it is a non-binding nomination), the trustee of the fund may:

  • apply their discretion to pay in accordance with any non-binding nomination;
  • exercise their discretion to pay the death benefit to a particular dependent or dependents; or
  • pay the benefit to the deceased's estate where it is distributed according to the deceased's will.

An executor or administrator can - in the case of payment to a dependent of the deceased -pay the death benefit as either a lump sum or in periodic payments. Where the recipient is not a dependent, a death benefit can only be paid as a lump sum.



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