Income Protection: Comparing Coverage Through Superannuation vs Direct Insurers

Would you be able to keep up with your everyday expenses if you were out of action and couldn’t work for a while? Income Protection insurance covers you with a regular monthly payment of up to a life insurance of 75% of your pre-disability income, for a specified amount of time, if you are unable to work due to illness or injury. It acts as a financial backup plan that provides ongoing support for a set period, as opposed to one lump sum. Income protection benefits can be used to help cover your household expenses, so you can focus on recovery.  

You can buy Income Protection insurance directly from an insurer, through a financial adviser, or get default insurance through your superannuation fund. Here are some of the key differences you need to know between Income Protection purchased from an insurer and the standard insurance cover you may be provided by your super fund.  

Note: For the purposes of this article, we are referring only to the standard insurance you can get through super where premiums are deducted directly from your super balance. 

What is income protection through Super?

Super funds exist to offer financial security for their members and offering life insurance is one way they do this. Many funds automatically provide a default amount of Life Insurance and Total and Permanent Disability (TPD) insurance, with Income Protection often available as a default product or an add-on. 

Who’s eligible? 

• Generally, available to super fund members aged 15-65 years (sometimes up to 70 years).
• Cover starts when you are 25 years old and have a super balance of more than $6,000. If you want your cover to start earlier, you will need to opt in for cover.
• Some funds have minimum requirements, such as hours worked per week. 
• You need to have an active super account receiving super contributions.

How it works

• You make an insurance claim through your super fund, which contacts the insurer. 
• If the insurer and super fund are satisfied you meet the definition of temporary incapacity, your benefit will be released from the insurer to your super fund, and then to you. 
• Waiting period begins. The waiting period is the amount of time you will wait before you start receiving benefit payments. 
• With standard policies within super, you may have little or no choice over the length of your waiting period.
• Benefit period begins. The benefit period is the amount of time you can receive benefits. 
• Through super, this is generally a set period, from 6 months up to 5 years. Some funds also offer benefits up to age 65. 
• You receive benefit payments. These are paid in arrears – one month after the waiting period ends. 

What is income protection insurance through an insurer?

Income Protection cover bought directly from an insurer or through a financial adviser is flexible cover that can be tailored to suit your personal circumstances. It generally comes with more included features, and claims may be approved quickly since you are dealing with the insurer directly.   

Who’s eligible? 

• Generally available to Australian residents aged 18 to 60
• Working a minimum of 20 hours a week
• Generating an income 
• Individual insurers may have different eligibility requirements

How it works 

• You make a claim directly through your insurer. 
• If your claim is successful, your waiting period begins.  
• Waiting period. The waiting period is the amount of time you agree to wait before you start receiving benefit payments. 
• Generally, insurers offer a choice of waiting periods, from as little as 14 days up to 6 months.  
• Benefit period begins. The benefit period is the amount of time you have nominated to receive benefit payments. 
• Your insurer will offer a choice of benefit periods, from 6 months up to 5 years. Some insurers also offer benefits up to age 65. 
• If you are still out of action once the waiting period is over, your payments begin. These are paid in arrears – one month after the waiting period ends. 
• Generally, choosing a longer waiting period and a shorter benefit period is one way to reduce your premiums. 

Key features of income protection through super

Cover 

• Automatic acceptance – no underwriting or medical checks. 
• One size fits all – cover is generally group cover, which means all members have the same level of cover. You can elect to increase your benefit amount, which would increase your premiums. 

Benefits

• Set benefit period - usually up to 2 or 5 years.
• May include a death benefit of up to 3 months’ worth of your Insurance Protection benefit
• May include Rehabilitation cover

Cost

• Premiums are generally lower than those offered by direct insurers.

Tax implications

• Generally, premiums are tax deductible for the super fund, not for you.
• If you choose to pay tax-deductible contributions into your super fund to cover the premium costs, you can claim a deduction.

Convenience 

• No out-of-pocket expenses if your premiums are deducted from your super balance.
• Set and forget – your fund manages your cover for you.

Claims process

• Your claim is assessed against the terms and conditions of the policy by the insurer and the super fund manager. You must meet a condition of release under both the superannuation law and the insurance policy definition of temporary incapacity in order to have the payment released.

Risks

• Insurance premiums are generally deducted directly from your super balance each month. This can reduce your overall super balance, which may affect your retirement savings.
• Basic cover only – might not meet your needs.
• Less flexible benefit and waiting periods – may not cover you when you need it or for as long as you need it.

Key features of income protection through a direct insurer

Cover

• Comprehensive cover.
• You will need to answer some questions about your health, occupation and medical history.

Benefits

• Flexible benefit period: up to 5 years, or to age 65. Suncorp offers a choice of benefit period, from 6, 12 or 24 months or 5 years.
• Often includes additional policy features and benefits, such as: 
• Accident cover
• Carers allowance
• Travel allowance
• Rehabilitation cover

Tax implications

• Generally, you can claim a tax deduction on premiums paid.    

Flexibility

• Tailored cover – can be customised to suit your changing needs and your budget.
• Available under different ownership structures – may be used for business purposes.
• Choice of waiting periods: Suncorp waiting periods start from just 14 days, or choose 28, 60 or 90 days.

Claims process

• Your claim is assessed against the terms and conditions of your policy. When your claim is accepted, your insurer pays you.

Risks

Premiums may be higher than income protection purchased through super.

Conclusion 

• Standard Income Protection through super offers affordable protection for all. However, it’s no-frills, and may have a long-term effect on your retirement savings.
• Income Protection direct from the insurer is customisable and offers a wide range of benefits but may come with more out-of-pocket costs.

Before you make a decision, it’s important to consider your own needs and circumstances, and make sure you understand the policies on offer.

Suncorp Income Protection is here to help.

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Read more:

• Is income protection Insurance tax deductible?
• Workers Compensation vs Income Protection Insurance
• What’s the difference between Life Insurance and Income Protection?

SUNCORP LIFE INSURANCE

Suncorp Life Insurance products, other than in some circumstances the Redundancy Benefit, are issued by TAL Life Limited ABN 70 050 109 450 AFSL 237848 (TAL Life) which is part of the TAL Dai-ichi Life Australia Pty Limited ABN 97 150 070 483 group of companies (TAL). TAL companies are not part of the Suncorp Group. TAL Life uses the Suncorp brand under licence from the Suncorp Group. Redundancy Benefit provided on or before 31st March 2020 was issued by AAI Limited ABN 48 005 297 807 AFSL 230859 (AAI) which is part of the Suncorp Group. New Redundancy Benefit policies and renewals offered from 1st April 2020 are issued by TAL Life. The different entities of TAL and the Suncorp Group of companies are not responsible for, or liable in respect of, products and services provided by the other.

Any advice on this page in connection with the Life products is general in nature and is provided by Platform Ventures Pty Ltd ABN 35 626 745 177 AFS Representative Number 001266101 (PV). PV is part of the Suncorp Group and an authorised representative of TAL Direct Pty Limited ABN 39 084 666 017 AFSL 243260 (TAL Direct). General advice does not take into account your individual needs, objectives or financial situation. Before you decide to buy or to continue to hold a Life Product you must read the relevant Product Disclosure Statement. The Target Market Determination (TMD) for the product is also available.

TAL Life is proud to have adopted the Life Insurance Code of Practice (Code). The Code has been developed voluntarily by the Life Insurance industry to promote high standards of service to consumers, provide a benchmark of consistency within the industry, and establish a framework for professional behaviour and responsibilities.

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