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Income protection through your superannuation: this is everything you need to know

Matthew Lang

Matthew Lang

Updated 19/10/2022
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Superannuation funds have a variety of insurance options to support yourself and your family if you are unable to work. Here we look at everything you need to know about income protection policies through your super.

Income protection through your superannuation: this is everything you need to know

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Can you get income protection insurance through superannuation?

Many super funds have the option to take out some form of life insurance cover, including income protection insurance. 

Depending on your superannuation provider, you will either have cover included when you sign up, or you will need to opt-in. Either way the contributions will be deducted from your super balance. 

Income protection is often an add-on to other insurance options and will provide you with a portion of your regular income if you are injured or ill, and unable to work for a short period of time. 

The portion of income covered is up to 70%. The cost of your insurance will depend on a couple of factors, including your age and health. It’s definitely worth checking this in your policy product disclosure statement (PDS).

Key Points

Most superannuation providers offer some form of life insurance policy, including income protection.

Income protection supports you if you’re unable to work for a short time, including incapacities caused by illness or injury.

Income protection is likely to be cheaper through your superannuation provider, but may be more restrictive.

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What is superannuation income protection?

Income protection insurance will provide a predetermined amount of money to support you while you are unable to work. 

There will usually be a maximum amount of time for which you can claim, and a maximum amount. A percentage of your payments will be paid directly to you and another, smaller amount, will go to your super. 

It is also likely you’ll need to use up your entire sick leave allotment through your employer before you can claim for income protection. Some providers also require you to use your annual leave allowance before you’re able to receive any other payouts.

Can you have agreed value income protection in super?

There are two different kinds of income protection insurance - agreed value, and indemnity value. Indemnity value is based on what you have earned in the 12 months leading up to your claim, while agreed value is based on an agreed benefit amount when you take out your policy. 

Agreed value suits people whose income can fluctuate, such as seasonal workers, as you only need to prove your income once and it won’t be assessed again. 

However, from April 1, 2020, the Australian Prudential Regulation Authority (APRA) which oversees banking, insurance and financial services activities, brought in new rules to stop insurance companies from issuing any new agreed value protection policies. 

Policy holders who had an agreed value income protection policy before the changes came into effect aren’t impacted by this change. 

Can you claim income protection through super?

Income protection cover often isn’t automatically part of the cover associated with your superannuation, so if you would like to be protected you will usually need to opt in. 

If you hold an income protection policy through your superannuation provider, you can claim on this by contacting the insurer. If you don’t know the insurer, you can contact your superannuation provider to find out.

Is the level of cover provided from your super different?

Typically, an income protection policy offered through your superannuation will be cheaper as superannuation funds secure policies in bulk. You usually won’t have to pass any medicals as you would with an external insurer. 

However, income protection through your superannuation may cover you for a shorter amount of time than it would through a standalone provider, and it’s likely you’ll have less choice about the features and benefits of your policy. 

Your policy is also intrinsically attached to your superannuation, meaning if you change funds or your account becomes inactive you will no longer be covered.

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Is superannuation income protection insurance enough?

Whether income protection through your super provider is enough for you will depend on your personal scenario. As the policies can be more restrictive than those through standalone providers, and may not pay out as much of your salary or for as long as an external policy, income protection through your superannuation may not be the right choice for you. 

But, if you don’t have access to the funds to pay for a standalone insurance policy, taking income protection cover out through your superannuation may be a good short term option. 

Can you have more than one superannuation income protection policy?

You can take out a policy through each of your superannuation providers, which allows you to have more than one income protection policy. However, this doesn’t mean you will receive double income, and there will still be a cap, so you may end up paying double the premiums for the same payout. 

Is superannuation income protection tax-deductible?

No, payments for income protection through your super are not tax-deductible. 

Is it worth getting income protection?

Whether or not you need income protection depends on a variety of things, including your current financial situation. If you have a lot of dependents and don’t have a safety net supporting  you should you be unable to work, then income protection cover offers some peace of mind. 

Compare Club’s life insurance comparison allows you to compare policies from 10 of Australia’s leading life insurers to find the perfect policy to suit your needs. We ensure there’s no hidden surprises, restrictions or exclusions by knowing each policy inside and out, so you can be sure you’re getting the right policy. 

Find the best policy for you today.

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Matthew Lang is the general manager of life insurance at Compare Club. Matthew leads a team of dedicated professionals who are passionate about helping individuals and families make informed decisions about their life insurance needs. Whether it's finding the right coverage for your specific circumstances, comparing policies, or optimizing your existing policy, Matthew and his team are here to provide expert guidance and support.

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Matthew Lang

General Manager of Life Insurance