In short

When one child inherits the family home and others need equivalent value, a life insurance policy on the parent's life can equalise the estate without selling the home or creating intra-family debt. Held outside super, proceeds pass tax-free and CGT-exempt to named beneficiaries. But premiums rise sharply with age and health issues, so this works best arranged while the parent is young and healthy.

For many Australian retiree families, the family home is the single largest asset by a significant margin. A typical retiree couple in a major capital city may have $1.5 million to $2 million of home equity alongside super and other holdings of perhaps $500,000 to $800,000. The home dwarfs everything else, and that concentration creates a specific estate planning problem when there are multiple children. The home cannot be neatly divided, and each of the standard distribution options has material drawbacks.

Selling the home and splitting the proceeds is the cleanest distribution mechanism, but it defeats the goal of keeping the home in the family. Where any child wants to keep it, they typically can't fund a buy-out from siblings without significant new debt. Allowing one child to inherit the home resolves the family-keeping issue but produces structural inequality — if the home is worth $1.5 million and other estate assets total $300,000 split between two other children, the disparity is $1.5 million versus $150,000 each, an outcome few parents intend. Multiple children inheriting jointly creates ongoing co-ownership issues — disputes over use, sale, maintenance — that frequently end in forced sale anyway. Promissory notes from the home-inheriting child to siblings are workable but create intra-family debt with all the strain that implies. For families wanting to keep the home in the family while ensuring fair treatment of all children, none of these options work cleanly. Life insurance offers a fourth path.

The mechanism is conceptually simple. A life insurance policy is taken out on the parent's life, with the sum insured set to (or proportional to) the value the non-home-inheriting children should receive. The home is bequeathed to one child via the will — typically the child with the strongest attachment or the practical capacity to maintain it. On the parent's death, the home passes via the will to the home-inheriting child, and the insurance proceeds pass directly to the named beneficiaries. The estate is equalised, the home stays in the family, and no child is materially disadvantaged. The implementation requires care.

The decision between holding the policy outside super or inside super has significant tax consequences. Where the policy is owned outside super by the parent on their own life with the children as named beneficiaries, premiums are paid from after-tax dollars. On death, the proceeds pass directly to the beneficiaries without being assessable income — life insurance proceeds in the hands of an original beneficiary are CGT-exempt under ITAA 1997 s.118-37 (https://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.37.html, accessed 6 May 2026), and they are not ordinary assessable income for the recipient. In most Australian states the proceeds also bypass the deceased's estate by passing directly to the named beneficiary, but in NSW the notional estate rule under Succession Act 2006 (NSW) s.75 (https://classic.austlii.edu.au/au/legis/nsw/consol_act/sa2006138/s75.html, accessed 6 May 2026) can pull the proceeds back into family-provision-claim consideration in some circumstances. Where the policy is held inside super with a death benefit nomination naming the children, premiums are paid from super contributions or balance, and on death the proceeds form part of the super death benefit with tax depending on the children's status — for non-tax-dependant adult children, the taxable component (which typically includes insurance proceeds funded inside super) attracts 15% plus the 2% Medicare levy on the taxed element, while the tax-free component passes tax-free (ATO — death benefits, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/in-detail/death-benefits, accessed 6 May 2026). For most retiree-to-adult-child estate equalisation, an outside-super policy structure is preferred because the proceeds pass without the death-benefit tax wedge; inside-super life insurance is more typically used while the parent is still working and benefits from the pre-tax premium funding.

The cost of life insurance for retiree applicants is materially higher than for working-age applicants, with premiums driven by age, health status, sum insured, and policy structure (level premium versus stepped premium). Indicative figures vary widely by insurer and applicant, and any quoted premium should be confirmed with the insurer rather than relied on from generic ranges (MoneySmart — types of life insurance, https://moneysmart.gov.au/how-life-insurance-works/types-of-life-insurance, accessed 6 May 2026). For a healthy non-smoker aged around 65, level-premium policies typically lock the rate at issue (with the rate held to a defined age, often 80 or 85) at a higher initial cost than stepped, while stepped premiums start lower but rise sharply with age and can multiply several times by mid-70s. By the mid-70s onwards, premiums on new policies become substantially higher and many insurers decline new applications altogether. For a 65-year-old with 20 years of further life expectancy, total premiums on a level policy can run into the low six figures over the parent's remaining life against a $1 million insurance benefit, and the economics generally only work for relatively young and healthy retirees.

Life insurance for older applicants is subject to medical underwriting, with several common issues. Many insurers have upper age limits for new policies — typically 70 to 75, with continuing existing policies sometimes extending to 85 or 90. Cardiovascular disease, cancer history, diabetes, and mobility issues can lead to higher premiums, coverage exclusions, or outright refusal of cover. Older applicants face more extensive medical assessments. For some retirees, life insurance is genuinely unavailable due to health issues, and where the parent is uninsurable or premiums are prohibitive, alternative equalisation mechanisms — buy-out from the home-inheriting child funded by a new mortgage at the parent's death, structured promissory notes, sale of other assets, or downsizing during life — become necessary.

Several practical structure considerations shape the implementation. For most adult-child equalisation, direct beneficiary nomination on the policy is appropriate because the proceeds pass straight to the named beneficiaries on death; a testamentary trust adds tax advantages where children are minors or have specific vulnerabilities, but for ordinary adult-child cases the simpler structure is typically preferred. The sum insured should be calibrated to the equalisation goal — if the home is $1.5 million and one child takes the home, the other children should collectively receive equivalent value. Other estate assets (super, cash, investments) can supplement the equalisation: the home-inheriting child might receive only the home while the other children receive the insurance proceeds plus the residual estate. Home values move, and a policy designed to equalise a $1.5 million home today may be inadequate when the home is worth $2.5 million a decade later, so a regular review every five years or so keeps the equalisation calibrated.

The conversation with children should happen during the parent's life, not after death. Communication reduces post-death disputes, allows the home-inheriting child to plan for inheritance, allows the non-home-inheriting children to plan around the eventual insurance receipt, and surfaces concerns — such as a child who feels strongly that the home should be sold rather than inherited by one sibling. For families with strained relationships, the conversation can be difficult, but it is generally better to have it during life than to leave the post-death period to discover the structure for the first time.

What do worked strategy examples show?

These two cases show how the same equalisation framework can produce a workable structure in one household and force a different solution in another. Illustrative only — not personal advice.

Case 1 — David, 65, healthy non-smoker, retiree. David and his late wife had three children. His home is worth $1,650,000 and his other assets are about $620,000 in super plus $80,000 in cash. His eldest daughter Helen has lived in a granny flat at the back of the property for several years and wants to keep the home; the two other children, Robert and Susan, are happy for that outcome but expect equivalent value. On these facts, an outside-super level-premium life insurance policy with sum insured of around $1,100,000, with Robert and Susan as direct equal beneficiaries, can equalise the estate. Helen takes the home (worth $1.65m) under the will plus a small share of residual estate; Robert and Susan each receive half of the insurance proceeds (approximately $550,000 each, paid directly to them tax-free as original beneficiaries under ITAA 1997 s.118-37) plus their share of remaining super and cash. The structure roughly equalises each child's inheritance at around $1.1m each. The trap to avoid is using a stepped-premium policy that looks affordable now but rises sharply into his late 70s — for a long-horizon equalisation goal, level premium locked to age 85 is generally rational despite the higher initial cost. He should also revisit the sum insured every five years against current home value.

Case 2 — Margaret, 74, single, with type 2 diabetes and a heart-attack history. Her home is worth $1,400,000 and she has two children, Tom and Norma. Tom wants the home; Norma expects equal treatment. Her super and other assets total $310,000. On these facts, life insurance is generally not the rational lever — at her age, with her medical history, new-policy underwriting is likely to decline her or to quote premiums that destroy the economics, especially for a sum insured large enough to equalise. The rational alternative pathway uses what is available rather than the unavailable. One option is a will that gives Tom the home subject to a charge for $545,000 (half of $1.09m, being the home value less her other estate assets distributed to Norma), with Tom funding the charge by drawing a mortgage at her death; another is to leave Tom the home and direct all super and cash to Norma, then make up the residual difference with a binding promissory note structure or a partial sale during life. Or the cleanest fallback — sell and downsize during her own lifetime, distributing the released equity now under the deprivation rules in a way that gets her affairs settled while she is well. The trap to avoid is assuming life insurance is the only equalisation tool — at her age, communication with both children plus a structurally honest will is more reliable than chasing a policy she may not qualify for.

For retiree families with home-concentrated wealth and multiple children, the structural inequality of the home as a single indivisible asset creates real estate planning difficulty. Life insurance is one of the more elegant solutions where it is available and economically viable. It keeps the home in the family while ensuring fair treatment of all children. The key is acting while the parent is young enough and healthy enough for underwriting to work — and communicating with the family along the way.

Sources

Key takeaways

  • When a family home is the dominant asset and one child inherits it, life insurance on the parent's life — sized to the value the other children should receive — can equalise the estate without selling the home, forcing joint ownership, or creating intra-family debt.
  • Held outside super, life insurance proceeds paid to named beneficiaries are CGT-exempt under ITAA 1997 s.118-37 and not ordinary assessable income — generally the preferred structure for adult-child estate equalisation, since inside-super proceeds attract death benefit tax for non-tax-dependant children.
  • Premiums for retiree applicants rise sharply with age, and many insurers set upper age limits of 70-75 for new policies — for a level-premium policy locked at issue, total premiums over a parent's remaining life can run into the low six figures against a $1 million benefit, so the economics generally only work for relatively young and healthy retirees.
  • Medical underwriting for older applicants can lead to higher premiums, coverage exclusions, or outright refusal, particularly with cardiovascular disease, cancer history, or diabetes — where a parent is uninsurable, alternative equalisation tools include a mortgage-funded buy-out at death, promissory notes, sale of other assets, or downsizing during life.
  • In most states, life insurance proceeds paid directly to a named beneficiary bypass the estate entirely, but in NSW the notional estate rule can pull the proceeds back into consideration for a family provision claim in some circumstances.

Frequently asked questions

How can I leave the family home to one child but treat all my children fairly?

A common solution is a life insurance policy on your own life, sized to the value the non-home-inheriting children should receive. The home passes to one child via the will, while the insurance proceeds pass directly and tax-free to the other named beneficiaries — equalising the estate without needing to sell the home or force co-ownership.

Is life insurance paid to my children taxed?

If the policy is held outside super with your children as named beneficiaries, the proceeds are CGT-exempt under section 118-37 of ITAA 1997 and aren't ordinary assessable income for them. This is generally preferred over holding the policy inside super, where proceeds form part of a death benefit and can attract tax for non-tax-dependant adult children.

Can older retirees get life insurance for estate equalisation?

It becomes progressively harder and more expensive with age. Many insurers have upper age limits of 70 to 75 for new policies, and health conditions like cardiovascular disease, cancer history, or diabetes can lead to higher premiums or outright refusal. This strategy works best when arranged while the parent is relatively young and in good health.

What if I can't get life insurance to equalise my estate?

Alternatives include structuring the will so the home-inheriting child takes the property subject to a charge they fund with a mortgage at your death, directing other assets like super and cash disproportionately to the other children, using a promissory note structure, or downsizing and distributing the released equity during your lifetime while you're still well enough to manage it.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.