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.
Many super funds provide life and disability insurance for fund members when they join the fund.
Income protection Super fund in Australia Continue reading guide
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.
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:
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.
Whether income protection inside superannuation or outside your fund is the right choice for you depends on your personal circumstances.
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.
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.
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.
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.
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.
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.
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:
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.
In order to make a claim with income protection inside super you have to both:
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.
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:
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