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).
Direct income protection insurance brands (outside of super)
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?
Are income protection premiums inside super tax-deductible?
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
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.