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Income Protection Through Super
Income Protection Through Super
Written by
Hannah Lovegrove
Edited by
Laura Crowden
Reviewed by
Eliza RyanEasily compare income protection quotes
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What is default income protection through super?
Long story short
Default income protection through super: The basics
Super funds often include default income protection, but the cover is often basic and is deducted from your super balance, impacting your retirement savings.
Comparing super vs non-super cover
Standalone income protection offers flexibility and tax-deductible premiums, while super-based cover is typically cheaper but more limited in benefits.
Consider your individual needs
Default super cover is “one size fits all”, which may not suit primary income earners or those with significant financial obligations.
What is default income protection through super?
Income protection is a type of life insurance that’s designed to replace a portion of your regular income if you’re not able to work due to sickness or injury, usually up to 70%. Income protection can help you with your regular bills and expenses, allowing you time to rest and recover before getting back to work.
While you can take a standalone income protection policy out directly with an insurer, it’s likely your super fund also offers default income protection cover. Many Australians will have some level of income protection or life insurance through their superannuation fund. With default cover, the cost of income protection cover forms part of the fees that are automatically deducted from your super.
There are several key differences that set super-based cover apart from a standalone policy, including:
- Policy ownership: With a standalone income protection policy, you own the policy and pay the premiums out of pocket. However, with super-based cover, your super fund owns the policy, and premiums are deducted from your super balance.
- Tax implications: With a standalone policy, your premiums are generally tax deductible, which is not the case for super-based policies.
- Coverage: Direct insurer income protection policies often offer more comprehensive cover and customisable benefits to suit your needs. Alternatively, a default income protection policy provided through your super will have more limited coverage.
- Cost: With increased cover often comes higher premiums, making direct insurer policies generally more expensive and super-based policies cheaper.
What insurance does default cover through your super provide?
For the most part, income protection offered through a super fund works in the same way as an insurer direct policy, with the benefit paid out when you’re unable to work due to illness or injury.
Super funds will typically offer three types of life insurance to their members, including:
- Life insurance: Pays a lump sum benefit to your beneficiaries in the event of your death or diagnosis with a terminal illness.
- Total and permanent disability (TPD) cover: Pays a lump sum benefit if you become permanently disabled and are unable to ever return to work.
- Income protection cover: Pays a monthly benefit for a specified period of time if you’re unable to work due to a temporary disability or illness.
While most employer super funds offer a basic level of cover, the benefit amounts will vary and are usually limited. For example, the default cover in your super may only provide $100,000 for life insurance. However, in December 2024, the average mortgage for Australians living in their own homes was more than $650,000,1Australian Bureau of Statistics – Lending indicators so the numbers may not add up for you to stick with a lower benefit amount.
What’s the difference between income protection through super and non-super?
There are several key differences that set super-based policies and insurer direct cover apart. Let’s take a look at how these two approaches to income protection differ.
| Non-super | Super | |
| Premiums | Paid fortnightly, monthly or annually from your own pocket. | Deducted from your super balance. While they’re potentially more cost-effective, they’ll reduce your super balance over time. |
| Flexibility | More room to adjust benefit and cover options. | Limited options that are typically tied to super fund. |
| Tax Implications | Premiums might count as a tax deduction. | Premiums don’t generally count as a tax deduction. |
| Payout | Might be subject to tax. | Might be subject to tax. |
| Health Checks | Typically requires a health check. | Health checks aren’t always required for default cover. |
Key considerations when choosing income protection through super
If you opt to hold default income protection insurance cover through your super only, it’s essential to consider if it provides sufficient coverage for you. Take the time to weigh up whether it meets your needs or if additional cover might be necessary.
Here are a few key factors to think about:
Does default income protection through super meet your needs?
Super funds often provide one size fits all cover that might not meet your individual needs.
For example, if you’re the primary income earner for your family and have significant financial commitments, it’s important to secure a policy that allows you to cover the bills, including mortgage repayments.
How will this impact your retirement savings?
Income protection premiums are deducted from your super balance, which can have a compounding effect over time.
Are you under 25 or have a low super balance?
As a new fund member, you often won’t be provided with income protection cover as default if you’re under 25 or have an account balance under $6,000 unless you contact your fund to specifically request cover.
Will your super account become inactive?
Your super account needs to stay active to retain cover. If your account hasn’t received funds in at least 16 months, your super fund is legally required to cancel your income protection insurance.
If you’re self-employed or a contractor with inconsistent super contributions, you can contact your super fund or make a contribution within 16 months to keep your insurance.
What is your benefit amount, benefit period and waiting time?
Whether your income protection is held within your super fund or not, it’s important to familiarise yourself with the specifics of your policy by checking the Product Disclosure Statement (PDS).
For example, a low benefit amount or long waiting period could leave you financially exposed and unable to pay your regular bills.
Helpful tip:
While income protection through your super may be convenient, it may mean you miss out on some handy perks. Income protection outside of your super may be tax deductible, plus you could pick more cover and enjoy extra features.
Eliza Ryan
Senior Marketing and Growth Channels Manager, Lifebroker
How to claim income protection through super?
To make an income protection claim through your super, you’ll need to contact your super fund to get the ball rolling. It’s often a good idea to have your policy number on hand. From here, you can ask how the process works and what forms and documents you need to provide.
You’ll often need to submit documentation to support your income protection claim, including:
- Medical reports and the results of medical tests, and
- An employer statement detailing your work duties and how many hours you usually work,
- Financial records, including tax returns, if you’re self-employed.
Once you’ve submitted your claim to your super fund, they should let you know of their decision within two months of submission or two months after the waiting period has ended. Based on the information and documents you provided as part of your claim, your super fund will decide whether you meet the conditions of your policy before releasing your payout.
Where can I find and compare standalone income protection?
When it comes to income protection insurance, you don’t have to default to your super. Compare policies from some of Australia’s leading life insurers with iSelect.
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iSelect’s partnered with Lifebroker (AFS Licence number: 400209) to help you compare a range of income protection Insurance policies. iSelect earns a commission from Lifebroker for each customer referred through the website or contact centre. Lifebroker do not compare all life insurers or policies in the market.
iSelect Life Pty Ltd – ABN 89 124 304 347, AFS Licence Number 331128. Any advice provided by iSelect is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect’s advice or purchasing any policies. You should consider iSelect’s Financial Services Guide which provides information about iSelect services and your rights as a client of iSelect.