---
title: "Who gets your super and its life insurance, when you die? - Sapience Financial"
description: "This is especially important if your life insurance is owned by your super fund because there are additional rules you need to understand. "
url: "https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance"
date: "2026-05-26T21:14:25+00:00"
language: "en-GB"
---

#  Who gets your super and its life insurance, when you die?

- ⚖️ Estate Law & Succession Planning
- [ life insurance ](https://mail.sapience.com.au/life-insurance/life-terminal-illness-insurance)
- [ family provision ](https://mail.sapience.com.au/all-tags/family-provision)
- [ blended families ](https://mail.sapience.com.au/all-tags/blended-families)
- [ case studies ](https://mail.sapience.com.au/all-tags/case-studies)
- [ case study ](https://mail.sapience.com.au/all-tags/case-study)
- [ ⚖️ Estate Law & Succession Planning ](https://mail.sapience.com.au/insights/estate-law-succession)
- [ 🏠 Wealth Builders & Home Finance ](https://mail.sapience.com.au/insights/wealth-builders-home-finance)

  ![old work boots on wooden floor](https://mail.sapience.com.au/images/blog/nominating-who-gets-your-super-and-life-insurance-sapience-financial.jpg) Many modern families simply don't know the questions to ask and find themselves in situations they never thought would happen to them. Reading Time: 6 minutes

---

### Life insurance inside your super has special rules you need to understand - especially if you're a blended family.

### You need to let your super fund (and life insurance company) know who you want as a beneficiary to receive any payout made upon your death.

This is especially important if your life insurance is owned by your super fund because there are additional rules you need to understand. If you don't, then you'll leave a whole lot of unnecessary pain and problems for your survivors.

#### *Read in this article*

 1. [What happens to a person's super when they die?](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#what-happens-to-a-persons-super-when-they-die)

2. [The problem of death taxes](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#the-problem-of-death-taxes)

3. [Case Study](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#case-study)

4. [Two DIY decisions that later divided a blended family](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#two-diy-decisions-that-later-divided-a-blended-family)

5. [What was supposed to happen](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#what-was-supposed-to-happen)

6. [What actually happened to Terry's three sons?](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#what-actually-happened-to-terrys-three-sons)

7. [Why this happened?](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#why-this-happened)

8. [So what do you think happened next?](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#so-what-do-you-think-happened-next)

9. [Frequently Asked Questions: Blended Families & Super Payouts](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#frequently-asked-questions-blended-families-super-payouts)

    1. [Why did the 20-year-old step-son in the case study receive nothing?](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#why-did-the-20-year-old-step-son-in-the-case-study-receive-nothing)

    2. [What is the 17% 'Death Tax' on superannuation?](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#what-is-the-17-death-tax-on-superannuation)

    3. [How do I ensure my step-children are actually protected?](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#how-do-i-ensure-my-step-children-are-actually-protected)

    4. [What qualifies as an 'Interdependency Relationship'?](https://mail.sapience.com.au/blog/nominating-who-gets-your-super-and-life-insurance#what-qualifies-as-an-interdependency-relationship)

### What happens to a person's super when they die?

When a member of a super fund dies, the balance in their fund (and any life insurance held by the fund) is usually paid to the super fund members *dependants*.

If you don’t have any *dependants*, it’s paid to your *estate* and usually dealt with according to what’s in your *will* or by the legal rules for those who die without a will.

- But what happens if you have stepchildren?

### The problem of death taxes

Today many people use the money in their super fund as part of their estate planning and provision for their family, just in case.

So it makes sense to understand the special rules and regulations that control who's allowed to get your money from a super fund when you die.

### Case Study

Terry is a 46-year-old tradie with three sons;

- one aged 15
- one aged 16 and
- one aged 17

Terry's defacto of 12 years Jenny is aged 50.

Like all many tradies, Terry is very successful but time-poor. After being repeatedly reminded by Jenny, Terry finally took out a life insurance policy one lunchtime with a telemarketer for:

- $1.5 million life insurance cover to protect his three sons and provide each a financial head start if he suffered a workplace accident and passed away.

Terry planned for Jenny to only inherit the family home.

### Two DIY decisions that later divided a blended family

Terry made two quick decisions without the help of a financial adviser his family would later regret.

1. Terry decided to have his life insurance paid from his super fund - because it was cheaper that way, and
2. Terry nominated his three sons, leaving each son 1/3 of the potential life insurance payout.

Sounds simple enough right? Sadly two years later, Terry did suffer a workplace accident and after a complicated head injury passed away.

### What was supposed to happen

Jenny thought she was to inherit the family home and each of the three boys would inherit 1/3 of Terry’s life insurance policy, about $500,000 a piece, held in Terry's super fund.

### What actually happened to Terry's three sons?

Terry died 2 years after the policy was taken out, so his three sons were all 2 years older when he died.

- Son now aged 17, **received $500,000** from the death payout of Terry's super fund, tax-free.
- Son now aged 19, **received only $415,000** from the death payout of Terry's super fund because he was forced to pay tax of $85,000.
- Son now aged 20, **received nothing**.

### Why this happened?

At the time of Terry's death,

- Son aged 17 was a **recognised tax dependant child** of Terry and therefore entitled to receive the super death benefit payout of $500,000 tax-free. Son 17 was happy.
- Son aged 18 was **considered a financially independent adult child,** and his portion of the super payment was $415,000 because it was taxed at $85,000. Son 19 was not happy.
- Son age 19 was **said to have ceased to be a child of Terrys** (because his birth mother Jenny was a defacto with Terry, and Terry never adopted him as his own). Son 19 was particularly not happy and went and got himself a solicitor to explore his options. ATO ID 2011/77

### So what do you think happened next?

At the worst possible emotional time in Jenny's life, she had to deal with losing her partner and significant financial tension between her three sons.

It's important to review your financial situation each year with your financial adviser so that these problems don’t happen to you and your family.

**Pro tip**: Regardless of the plans you have for the money and insurance in your super fund, the legal decision of whether your nominated beneficiaries are legally able to receive your money *occurs at the time of death*, not at the time of your original decision.

There are some things you shouldn't leave to a DIY decision - who gets your superannuation if you're a blended family is one of them.

---

### Frequently Asked Questions: Blended Families & Super Payouts

#### Why did the 20-year-old step-son in the case study receive nothing?

This is known as the **Step-child Relationship Cliff**. In Terry's case, the 20-year-old was the son of his de facto partner, Jenny. Because Terry never formally adopted him, the legal "step-child" relationship ceased the moment Terry died. In the eyes of Superannuation Law, he was no longer a "dependant" eligible to receive a direct payout from the fund.

#### What is the 17% 'Death Tax' on superannuation?

While Australia does not have a formal inheritance tax, we have a **Superannuation Death Benefits Tax**. If your super (including life insurance) is paid to someone who isn't a "Tax Dependant"—like a child over 18—the taxable component is taxed at **17% (15% tax + 2% Medicare Levy)**. For a $500,000 payout, that is an immediate $85,000 loss to your beneficiary.

#### How do I ensure my step-children are actually protected?

To avoid the "Terry and Jenny" disaster, you need a **Binding Death Benefit Nomination (BDBN)** that is regularly audited, or you must nominate your **Legal Personal Representative (Estate)** and use a **Testamentary Trust** in your Will. This "Sovereign" approach bypasses the rigid definitions of the Super Law and ensures your wishes are legally enforceable.

#### What qualifies as an 'Interdependency Relationship'?

This is a vital legal safety net. Two people have an **interdependency relationship** if they live together, have a close personal relationship, and provide each other with financial, domestic, and personal support. Proving this for adult children who still live at home can be the difference between a tax-free payout and a significant tax bill.

*Disclaimer: Superannuation and tax definitions for blended families are highly technical and assessed at the date of death. For a "Black and White" audit of your nominations, we recommend a [confidential consultation](https://mail.sapience.com.au/contact).*

**Do we sound like the type of people you'd like to do business with?**
 Call us today on 1300 137 403 or email us [here](https://mail.sapience.com.au/index.php?Itemid=704) for a no-obligation private chat about your situation.

---

![author pic drew browne](https://mail.sapience.com.au/images/author-pic/contact-drew-browne-advisor-sapience-financial.jpg)**Drew Browne** is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses. He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog [here](https://mail.sapience.com.au/index.php?Itemid=1267). You can connect with him on [LinkedIn](https://www.linkedin.com/in/drewbrowne/).  Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

![Written by Human Not made by AI sapience financial ](https://mail.sapience.com.au/images/icons/not-made-by-AI-sapience-financial-black.png)

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