Income Protection through superannuation

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

Reasons to get Income Protection through super

• 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.
• Premiums are through your super. Premiums are funded from your super fund balance and therefore it eats into your super balance.
• 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) when you claim.

Compare direct IPI brands (outside of super)

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Name	Product	Short Description	Maximum Monthly Benefit	Maximum % of Income Covered	Maximum Benefit Period	Waiting Period
NobleOak Income Protection		Income protection is fully underwritten and benefit period can be tailored to suit your needs.	$25,000	75%	2 years	30 or 90 days	Get quoteMore info	Compare	loading Fetching your data...
Virgin Income Protection		Help protect your lifestyle with a new Virgin Income Protection policy. If eligible, you can earn 25,000 Velocity Points. Ends 02 September 2019. Min $80/month, min. 6 month policy to earn Points.	$10,000	85%	5 years	14, 28, 60, or 90 days	Get quoteMore info	Compare	loading Fetching your data...
Qantas Income Protection		Join Qantas Income Protection and earn up to 100,000 Qantas points. T&CS apply including minimum premium and policy hold periods apply to earn points.	$12,000	75%	5 years	2, 4, 13 weeks or 2 years	Get quoteMore info	Compare	loading Fetching your data...
AAMI Income Protection		Get cover up to 75% (to a maximum of $10,000) of your monthly income.	$10,000	75%	24 months	30 days	Get quoteMore info	Compare	loading Fetching your data...
Medibank Income Protection		Get income protection cover (up to 75% of your income) without a medical test. Plus, Medibank health insurance members can save 10% off premiums.	$7,500	75%	5 years	30 or 90 days	Get quoteMore info	Compare	loading Fetching your data...
NobleOak Income Protection		Cover up to 75% (to a maximum of $30,000) of your monthly income with NobleOak Income Protection. Plus, get two months free when you combine income protection with another type of cover. T’s and C’s apply. Ends 29 August 2019.	$30,000	75%	2 years or to the age of 65	30 or 90 days	Get quoteMore info	Compare	loading Fetching your data...
nib Income Protection		Receive one month's premiums free if you pay annually. T’s and C’s apply.	$10,000	85%	24 months	14 or 28 days	Get quoteMore info	Compare	loading Fetching your data...
ANZ Income Protection		Receive up to 75% of your income (up to $10,000 per month) if you're unable to work due to serious illness or injury.	$10,000	75%	5 years	30 or 90 days	Get quoteMore info	Compare	loading Fetching your data...

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Is it possible to get Income Protection through super?

I don’t see any Income Protection in my super – what is it typically called inside super?

Income protection policies held through superannuation is usually referred to as income protection cover or income protection insurance, or in some cases - salary continuance.

If you can’t see any income protection insurance or salary continuance in your super, this is most likely due to one of two reasons:

• Your superannuation fund doesn’t offer any income protection insurance to its members. This is rarely the case as most funds offer some form of cover.
• You haven’t opted to take out cover. When you join a super fund, death and TPD cover are commonly included as default insurance covers. Income protection insurance sometimes isn’t included in this bundle, so you’ll either have to opt in to cover when you join a fund, or contact your current super fund to find out how you can purchase income protection cover.

If you don’t have any income protection insurance in place and you’d like to take out cover, this is usually a simple process. In most cases, you can apply for cover online through your super fund’s online member portal.

For those with an uncertain cash flow

For example, if your day-to-day cash flow fluctuates and is unsecure, such as if you’re starting a new business, holding cover through super may be a good choice for you.

Families who don't have a high cash flow right now

The same goes for growing families who, while they might be strapped for cash now and struggle to pay for cover from their monthly budget, have a long working future ahead and could benefit from the protection this type of insurance provides.

Those looking for convenience

If you’re simply looking for an easy and convenient way to take out cover, regardless of the fact that it may not offer a comprehensive range of benefits, it’s worth looking into buying insurance through super.

Stable cash flow

On the other hand, if you’ve got stable and sufficient cash flow that won’t be adversely affected by paying income protection premiums, holding cover outside super may be a better choice. This is often also the best option for empty nesters nearing retirement age, who should be concentrating on building their retirement savings as much as possible.

Choosing whether to hold income protection cover inside or outside super can be a complicated and confusing process, so it may be worth seeking out advice from a financial planner. You can also check out our handy guide for an in-depth look at the pros and cons of holding cover inside super.

Is cover included inside super enough?

The answer to this question really depends on your cover needs and why you want to take out a policy.

Income protection through super is suitable for some people, providing easy and convenient access to cover in a way that doesn’t affect their day-to-day budget.

Some policy aspects that may leave you undercovered

• Basic cover. While standalone income protection policies can be tailored to suit your individual needs, superannuation income protection cannot. This means that optional benefits available outside super, such as childcare benefits and needlestick injury benefits, aren’t available on cover held inside super.
• Short benefit periods. Income protection through super usually only pays a monthly benefit for a maximum period of two years. If you suffer a serious, life-changing injury or illness, this reduced benefit period may be insufficient.
• Underinsurance. When you buy cover inside super, there’s a much greater risk of not knowing what is and isn’t covered by income protection insurance. Not only does this mean there’s a risk of taking out cover that is mismatched to your level of risk, but also that you could get a nasty surprise when a future claim is rejected.
• Set and forget. When insurance is held inside super and premiums are automatically deducted from your super balance, it can be easy to forget that you have cover in place. It’s important to regularly review your cover needs and the protection your insurance provides to determine whether it’s still the right fit.
• Impact on retirement savings. Buying superannuation income protection means your super balance will take a hit and you’ll have less savings to call on when you retire.

There are several other risks associated with insurance inside superannuation, such as cover lapsing if you move to a new super fund, so make sure you’re aware of all the potential drawbacks before taking out a policy.

How do I claim when a policy is inside super?

If you need to lodge an income protection claim through super, you will generally need to follow these steps:

Your claim will then be assessed by the insurer. However, keep in mind that to receive a benefit you must satisfy two criteria:

• You must meet the definition of disability outlined in your income protection policy.
• You must meet the super fund’s temporary incapacity definition so that your income protection benefits can be released to you by the fund.

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.

• Are payouts from income protection inside super taxed?

  The benefit payments for income protection cover held inside a super fund are not taxed.

• Are income protection premiums inside super tax-deductible?

  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 (IPI) inside superannuation?

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), so 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

Richard Laycock

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Richard Laycock is Finder's insurance editor, and has spent the last five years wrangling insurance product disclosure statements. His musings about insurance have appeared on Money Mag, Yahoo Finance, and Travel Weekly. When he’s not helping people make sense of insurance fine print, he is testing the quality of cocktails in his newfound home of New York. Richard studied Media at Macquarie University and The Missouri School of Journalism and has a Tier 1 Certification in General Advice for Life Insurance.