Sometimes life surprises us in completely unexpected ways. Whether it’s a sudden illness, job loss, or an unforeseen expense, it’s important to always have the right safety net in place. Insurance– like income protection insurance can provide you peace of mind by equipping you with sufficient financial support when life suddenly decides to throw you a curveball.

At present, within Australia, there are two separate ways of obtaining income protection insurance– either through your superannuation fund or by purchasing a standalone policy directly from a private insurer. While the majority of Australians choose solely to rely on income protection cover through their superannuation, it poses a crucial question: is it sufficient?

Automatic Income Protection Through Super

When you sign up for a superannuation fund, you automatically gain access to life insurance and total permanent disability (TPD) insurance. Additionally, some super funds will also provide you with income protection insurance. This is designed to replace your income based on your annual earnings in the twelve months prior to your unforeseen injury or illness.

Income protection insurance may cover up to 85% of your pre-tax income including super guarantee. The income protection offered through a super fund may differ fund to fund.

Retail Income Protection

Typically known as retail insurance policies, income protection insurance outside of super, or inside super (paid from your super), is usually a lot more customisable. Several notable features of retail income protection insurance include:

• You can tailor your policy to meet your individual needs. For instance, you can choose your benefit period, waiting period, and coverage amount to align with your specific circumstances.
• A retail insurance policy may offer a higher coverage limit compared to the coverage offered by the default cover in a super fund. For instance, some super funds might only offer a maximum default benefit of $2000 a month, which might be nowhere close to your actual income.
• Premiums for retail income protection policies held personally are tax-deductable. This means the overall cost of your policy may be much lower after tax.
• Retail insurance policies are renewable (outside or inside super). This means your insurer will not be allowed to change the terms of your policy once your policy is in place.
• Retail insurance usually offers extra features such as world-wide cover and benefits such as supplementing rehabilitation costs (up to 12 x times your monthly sum insured).

Drawbacks of Default Income Protection Insurance through Super

While default income protection insurance through your superannuation fund tends to be the what many people have in place, there are several drawbacks you should consider as follows:

• Income protection insurance through your super usually leads to an erosion of your retirement savings. This is because your insurance premiums are directly deducted from your super balance.
• Default coverage is usually quite limited. This means it might not adequately protect your income. Likewise, if you were to update your cover through your super fund, it might end up being a lot more expensive than purchasing a retail insurance policy.
• If you– change super funds, stop contributing to your fund, have a low balance, or an inactive account, your income protection insurance through super may be cancelled.
• Superannuation funds can change their insurance terms and conditions at any time. This means it might become harder for you to claim coverage or you might experience significant pay-out reductions.
• The benefit periods for default income protection policies through super may have limitations. Hence, it may not provide you with long-term financial security.
• Income protection insurance through super is not tax deductible. This is because your super fund is the policy owner.
• Claims processing times are much slower. The claim goes through several decision making stages, ultimately resulting in delays.
• You may need to meet very specific conditions to be eligible for a claim. Certain policies cease to offer coverage if you’re unemployed or take unpaid leave.
• There may be additional ‘total days disability periods’ within the waiting periods which must be satisfied before a successful claim can be made. Retail policies typically have more favorable policy terms than cover offered as part of a default or super insurance offering.

Why Choose Morgan Insurance Brokers

It’s important to note that policies may vary depending on the type of income protection insurance you choose to invest in. It is important to know what you’re covered for when deciding on the right type of income protection insurance for yourself. While income protection insurance through your super fund is a convenient option, there are several drawbacks to consider.

Need help comparing your options? At Morgan Insurance Brokers, income protection insurance is one of our core services. We understand just how crucial it is to safeguard yourself during rainy days.

Our team will help you secure the ideal coverage you need to meet your needs. Our brokers will guide you towards finding your perfect fit.