Death benefits play a critical role in the Australian financial landscape, offering a financial lifeline to families and dependents after the loss of a loved one. As we move into 2025, it’s more important than ever for Australians to understand how death benefits work, how recent policy changes may affect payouts, and the best ways to ensure your beneficiaries receive the support they need.
Understanding Death Benefits: Superannuation and Insurance
Most Australians encounter death benefits through two main channels: superannuation funds and life insurance policies.
- Superannuation death benefits: Paid to dependants or nominated beneficiaries when a fund member dies. This can include a lump sum or, in some cases, an income stream.
- Life insurance death benefits: A lump sum paid to nominated beneficiaries upon the policyholder’s death, often used to cover debts, living expenses, or funeral costs.
In 2025, super funds are making it easier to nominate beneficiaries online, and the Australian Prudential Regulation Authority (APRA) has rolled out new transparency requirements for super funds, so members are clearer on their options and entitlements.
Policy Updates and Tax Implications in 2025
The landscape for death benefits is evolving. The 2025 Federal Budget confirmed no new taxes on super death benefits, but there are important nuances Australians need to be aware of:
- Tax treatment depends on the beneficiary: If the recipient is a dependant for tax purposes (e.g., spouse, de facto partner, child under 18), the lump sum is usually tax-free. For non-dependants, a portion may be taxed at up to 32% (including Medicare levy).
- Insurance inside super: If your life insurance is held within your super fund, the payout can be taxed if paid to a non-dependent. In contrast, standalone life insurance policies usually pay tax-free benefits, regardless of who receives them.
- New APRA guidelines: As of January 2025, super funds must proactively inform members about their beneficiary nominations annually, aiming to reduce disputes and delays in payouts.
For example, if Sarah, a single mother, names her 10-year-old son as her beneficiary, the superannuation death benefit he receives will be tax-free. If she names her adult brother, however, he may face a significant tax bill.
Maximising Your Death Benefit: Key Considerations
Ensuring your loved ones receive the full benefit of your life’s work requires careful planning. Here’s how to get the most out of your death benefit in 2025:
- Keep beneficiary nominations up to date: Life changes fast—marriage, divorce, or new dependants mean you should review your nominations annually. Super funds now send digital reminders, making it easier to stay current.
- Consider binding nominations: A binding nomination forces your super fund to pay your benefit exactly as directed, giving you greater certainty and reducing the risk of disputes.
- Check your policy ownership: If you want death benefits to be tax-free for any beneficiary, consider holding life insurance outside of super, especially if your intended recipients aren’t tax dependants.
- Plan for estate inclusion: If you don’t nominate anyone, your death benefit may form part of your estate and be distributed according to your will—potentially slowing down access or exposing it to creditors.
With the average superannuation death benefit payout in Australia now exceeding $100,000, these decisions have real financial consequences for families.
Common Questions and Pitfalls in 2025
- What if I don’t nominate a beneficiary? Your fund’s trustee decides who gets the benefit, typically choosing your dependants or estate. This can lead to disputes and delays.
- Are all death benefits paid as a lump sum? Most are, but income stream options (such as a pension for a spouse) are increasingly available in larger super funds.
- What about blended families? New APRA guidelines recommend funds proactively identify and communicate with all possible dependants to avoid legal battles.
- Can debts be deducted from my death benefit? In most cases, creditors cannot claim on superannuation death benefits paid directly to dependants, but estate-based benefits may be exposed.
As Australians become more mobile and family structures more complex, clear beneficiary nominations and a solid understanding of your policy or fund’s rules are crucial in 2025.
