Australians who hold death cover through their superannuation funds could leave their adult children with a higher payout when their insurance is held in a separate account, rather than as part of their super savings.

Death cover held in a separate account reduces the size of the taxable component over which taxation still needs to be paid upon death of the policyholder, ING national manager technical services Rudy Haddad said yesterday during a press briefing.

"It could be beneficial to keep the money separate," Haddad said. "When paying benefits to non-dependants it becomes more of an issue."

"When you are paying to a dependant and the payment comes as a lump sum it's already tax free."

People who are considered dependants include spouses, ex-spouses and children under the age of 18.

Separately held death cover policies within a super fund are insurance products only - they do not have an accumulation component.

Haddad gave an example in which a person has $200,000 in accumulated superannuation benefits and holds death cover insurance of $400,000.

In the case of the holder's death the adult children receive $475,000 after taxes when held as a separate account, while $454,500 is paid out when the insurance is held within super savings.

"That's because the insurance cover has polluted the superannuation savings, so to speak," Haddad said. "It's unfair, but it's something that members need to be aware of."

The number of people who hold their death cover separately is quite common in group death cover policies, but less so for those with retail products.

"For retail, it's growing," Haddad said.