Income Protection Through Superannuation

Should I consider getting income protection insurance through my super?

Many super funds provide life and disability insurance for fund members when they join the fund.

Reasons to get income protection through super

  • Premiums are through your super. Premiums are funded from your super fund balance, so your day-to-day cash flow isn't impacted.
  • Premiums may be cheaper. Because super funds buy income protection policies in bulk, the cost of premiums are less than standalone policies.
  • Automatic acceptance. Income protection through super usually automatically accepts it's policyholders.

Reasons not to

  • You might not be getting the amount of cover you need. You might only be able to get cover for up to two years on some super policies (as opposed to the age of 65 on some standalone policies)
  • Less flexibility on your policy. A standalone policy can give you more options e.g. greater choice of waiting and benefit periods, additional benefits for specific injuries / rehab.
  • Benefit payments must meet strict criteria. A policy inside super is subject to a set definition under the Superannuation Industry (Supervision) Act 1993 (SIS Act).

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Direct income protection insurance brands (outside of super)

Rates last updated October 18th, 2017
Name Product Short Description Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period
Protect your lifestyle with Virgin Income Protection. New eligible customers can earn 25,000 Velocity Points. Ends 31 Oct. Min monthly premium and T&Cs apply.
5 years
14, 28, 60, or 90 days
Receive up to 75% of you income (up to $10,000 per month) of your income if you're unable to work due to serious illness or injury.
5 years
30 or 90 days
Cover up to 75% of your monthly income if you can’t work due to illness or injury, up to a maximum of $10,000 a month. Take out cover today and you could get a bonus $100 Gift Card.
5 years
30 or 90 days
Cover up to 75% (to a maximum of $25,000) of your monthly income with NobleOak Income Protection. Benefit period can be tailored to suit your needs.
2 years or to the age of 65
30 or 90 days

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Is income protection insurance through superannuation tax-deductible?

Income protection premiums are tax-deductible when owned outside super fund, as the policy is considered to replace income at the time of claim. Income protection benefit payments however, are subject to tax as they are considered as part of the policyholders taxable income. Income protection policies held inside super fund however, have different tax regulations that are often quite complex.

The benefit payments for income protection cover held inside a super fund are not taxed.
Super fund members cannot claim income protection premiums as tax deductions when the policy is owned within super.

When am I eligible to make a claim?

In order to make a claim with income protection inside super you have to both:

  • Satisfy the conditions of the insurance policy so the insurer can authorise payment.
  • Meet the definition of 'temporary incapacity' so that your income benefit can also be authorised by the super fund

What is temporary incapacity?

Temporary incapacity refers to when you need to cease work on a temporary basis because of a physical or mental illness, but is not on a permanent basis. In order for income protection inside super to payout, it needs to meet this definition on top of the conditions of the insurance policy.

What are the advantages and disadvantages of having your income protection insurance inside superannuation

  • Premiums through a super fund are more cost-effective. Large super funds purchase the policies in bulk to access group discounts, allowing for lower premiums to members.
  • Premiums are automatically deducted from the balance in your super fund. This can eliminate additional financial strain on your monthly budget.
  • Automatic acceptance. Income protection cover through a super fund usually offers automatic acceptance. Members are not required to complete blood tests or medical exams to obtain cover.
  • Same rates for smokers. Smokers pay the same premiums rates as non-smokers.
  • High risk occupations are covered. There are no occupational restrictions with income protection policies obtained through super.
  • Tax -deductible in some cases. If you are self-employed, you can declare your super contributions as a tax deduction if it's used to fund income protection.
  • Your cover may lapse if:
  • Your super account has become inactive,
  • Move into a different super account,
  • Change your job with a different employer,
  • Your employer fails to pay contributions into your super.
  • Income protection through superannuation only provides basic cover. This might not be suitable for individuals with more complex cover requirements.
  • Short benefit periods. Most policies will only provide benefit payments for a maximum period of two years.
  • Agreed value policies are unavailable. Policies inside super only available on indemnity value basis.
  • Not usually tax deductible. Income protection premiums paid through your superannuation fund are not tax-deductible unless you're self-employed.
  • Claims process can be quite complicated. In order for the super fund trustee to provide the payout, you must satisfy the condition of release under the 'temporary incapacity definition'.
  • Reduced retirement savings. Your income protection premium payments will reduce your retirement savings.

What other types of insurance are available through superannuation?

In general, if you have a default super fund with your employer, you will be offered a minimum level of life insurance, based on your age. You may choose to increase, decrease or opt out your default cover. There are three types of life insurance available through super:

  • Death cover: provides a lump sum payment to your nominated beneficiaries in the event of your death.
  • Income protection: provides regular benefit payments for a specified period if you are unable to work due to a serious illness or injury. Also known as salary continuance insurance by other super funds.
  • Total and permanent disability (TPD) cover: pays a lump sum benefit amount if you become permanently disabled and are unlikely to return to work ever again.

While death and TPD cover are automatically included with most industry super funds, it may not necessarily be the case with income protection insurance. Three out of five of the large industry super funds do not offer income protection as a default option (Bouris, 2012), therefore, it is important to check whether or not you are able to obtain the policy through your super fund. It is worth checking to see if you are already covered by your super fund by default and assess how much cover is in place.

Make an enquiry for income cover funded through super

DISCLAIMER: This article contains general advice and does not consider your own personal circumstances. It is not tax advice and the general nature of this material may not be applicable to you. You should obtain professional advice and verify our interpretation before relying on the information contained in our article.

Richard Laycock

Richard is the insurance editor at He is on a mission to make insurance easier to understand.

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