Here's your guide to understanding both types of cover.
What are the differences between these two options?
- Salary Continuance Insurance. Generally only available through superannuation funds. It's most commonly offered to employees in a group plan and can be a really helpful backup should something go wrong. However, it's not tax deductible and is usually only payable for two years.
- Income Protection Insurance. This is catered more towards you. Whilst it's likely to cost you more, you'll have more choice and security. Most insurers give you freedom and flexibility on benefit and waiting periods as well as how often you want to make premium payments. Some insurers even let you receive payments up to the age of 65. What's more, it's usually 100% tax deductible.
Compare the pair in detail
| Feature | Salary Continuance | Income Protection |
|---|---|---|
| Maximum benefit period | 2 years | To age 65 |
| Available through super? | Only available through superannuation | Can be funded both inside and outside of superannuation |
| Group protection | Primarily taken out within Group super plan which can result in a group discount | Cover primarily provided as standalone |
| Tax deductible | Premiums are not tax deductible | Premiums are generally 100% tax-deductible |
| Flexibility | As cover is generally bought in bulk, cover is not as flexible as standalone income protection and cannot be tailored as closely to applicants needs | Cover can be tailored to include additional benefits with choice of benefit periods, waiting periods, premium payment frequency |
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Salary continuance insurance and income protection as life insurance products
Both Salary Continuance and Income Protection Insurance provides financial protection in the event that you are unable to work, should you become disabled due to an serious injury or illness. Most policies may also provide coverage if you have been diagnosed with a terminal illness.
These types of income insurance products provide a monthly replacement of up to 75% of your regular income. These benefit payments can be used to maintain your family’s lifestyle and cover any living expenses, such as:
- Groceries, food, and clothing
- Utilities; electricity, water, gas and telecommunications
- Rent or mortgage repayments
- Short-term debts; credit card bills and loans
- Long-term debts
- Children’s school fees
The maximum amount of cover that you can insure with both salary continuance and income protection is 75%. There may be other income insurance providers that offer coverage in excess of 15%; however, the remaining amount must be used as superannuation contributions.
Key features of salary continuance insurance and income cover
Salary Continuance and Income Protection insurance both share a common purpose, which is to offer financial benefits on a monthly basis if you cannot work due to illness or injury. The extent of coverage for both policies is similar; however you may find that there are some differences in the features that salary continuance insurance and income protection offer.
Some of the differences between salary continuance and income protection insurance that you may find include:
| A form of income protection that is held within a superannuation fund. If you do not have super fund, you do not have the access to salary continuance insurance. | Held as a standalone income insurance policy; however, you can opt to have the cover inside your super fund and pay for the premiums with the balance in your super. | |
| You are not required to undertake any blood tests or medical examinations. | You may be required to complete some health questionnaires, blood tests and medical exams. | |
| Features and benefits on offer are generally quite limited. | More comprehensive features and benefits are offered and can be tailored to your needs. | |
| Salary continuance insurance does not provide coverage for involuntary unemployment. | Income protection does not provide a benefit if you have been made redundant. However, some insurers may provide some assistance by freezing your cover or waiving your premiums. | |
| Most salary continuance insurance providers may only provide benefit payments to a maximum of two years. | You can choose the benefit period that is most suitable to your needs and situation, from 2, 5 years, or up until the age of 65. | |
| Because salary continuance insurance is purchased in bulk either by an employer and/or through your super fund, the premiums are more cost-effective. | Income protection premiums may cost more than salary continuance insurance; however, it provides more comprehensive cover through a wide range of features and additional options. | |
| You will continue to be covered provided that premium payments are met. If you are covered under group salary continuance insurance through your employer, your cover will cease if you change your job. | If the premium payments are met, you will continue to be insured, regardless of any changes in your health. |
Choosing between salary continuance insurance and income protection insurance
To determine which income insurance product most suited to you will depend on your needs and individual circumstances.
Pros and cons of Salary Continuance Insurance
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Pros and cons of Income Protection Insurance
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Conclusion
Income protection insurance is important to have, especially if you are the main income earner and have a family who depends on you financially. Income protection is not only suitable for workers who earn a regular salary with limited leave provisions, but also those who are self-employed and primarily earn their salary and commissions from their business and are not entitled to workers compensation benefits.
An illness or injury can happen to anyone, often unexpectedly, and the first thing that will be affected is your ability to work. Consider whether your savings will be enough to keep on top your financial obligations when your sick leave has run out, and if your recovery takes longer than expected. Will you be able to survive financially?
If the answer is no, then consider the benefits of having salary continuance or income protection insurance in place. When considering income protection insurance either held inside or outside of your superannuation, it is important that you assess your insurance needs and choose the one that is suitable to your circumstances and budget.
Both options have their advantages and disadvantages to consider. To ensure that you make the right decision when weighing up your options, it is always wise to talk to an insurance consultant who can provide guidance tailored your needs and situation.
