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 November 22nd, 2017
Name Product Short Description Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period
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.
$25,000
75%
2 years or to the age of 65
30 or 90 days
Protect your lifestyle with Virgin Income Protection. New eligible customers can earn 25,000 Velocity Points. Ends 31 Nov. Min monthly premium and T&Cs apply.
$10,000
85%
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.
$10,000
75%
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.
$10,000
75%
5 years
30 or 90 days

Compare up to 4 providers

Is it possible to get income protection through super?

Yes, it does. Income protection insurance is a common feature Australian super funds offer to their members.

However, unlike death cover and TPD (total and permanent disability) insurance, it isn’t always part of the default insurance cover offered when you join a super fund. Instead, you may need to apply to have income protection cover included as part of your fund membership.

The premiums for income protection in superannuation are paid from your super fund balance, not out of your pocket, so taking out cover won’t have any impact on your day-to-day cash flow.

Unlike death cover and TPD (total and permanent disability) insurance, it isn’t always part of the default insurance cover offered when you join a super fund.

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.

Should I get cover inside or outside super?

Whether income protection inside superannuation or outside your fund is the right choice for you depends on your personal circumstances.

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 under-covered

  • 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:

  1. Contact your insurer to let them know you wish to make a claim
  2. Fill out a claim form with details of your illness or injury
  3. Ask your doctor to complete any relevant forms
  4. Provide any supporting documentation requested by your super fund, such as proof of ID, medical reports and proof of your pre-disability earnings
  5. Submit your claim

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.


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

AdvantagesDisadvantages
  • 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 finder.com.au. He is on a mission to make insurance easier to understand.

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