CompareAll Business InsuranceCompare Business InsuranceOverseas Visitor CoverAll LoansCompare Loans
Many super funds include income protection, also called salary continuance, as part of their default insurance. It pays you a regular income for a set time if illness or injury stops you working, and the premiums come out of your super balance rather than your pay.
Holding it in super is convenient and can cost less, but the cover is usually narrower than a policy you own yourself. Benefit periods are often shorter, the definitions are set by the fund's group policy, and you can't claim the premiums as a tax deduction because you didn't pay them from your own income. Which is better depends on how much of your income you need to protect and for how long.
By Better Rate Mate Editorial Team ยท Last reviewed
Moneysmart says most super funds offer income protection, and some give it automatically alongside default life and TPD cover. Default cover is for a set amount, and you can usually get it without medical checks. Premiums are deducted from your super balance, which reduces your retirement savings over time.
Benefits are paid by the fund under the temporary incapacity condition of release in superannuation law. In practice that means a monthly income while you are temporarily unable to work, for as long as the cover's benefit period allows. Moneysmart says funds commonly offer benefit periods of two years, five years or up to a certain age.
The same rules that switch default life cover on and off apply here. Funds must cancel insurance on accounts with no contributions for 16 months unless you ask to keep it, and cover doesn't start automatically for new members under 25 or while your balance is under $6,000.
The comparison below covers the features that change most between the two. Your fund's insurance guide and any retail PDS set the actual terms.
| Feature | Inside super | Outside super (you own the policy) |
|---|---|---|
| Who pays the premium | Deducted from your super balance | You, from your own money |
| Tax deduction for premiums | Not for you personally | Generally deductible if it insures loss of salary or wages |
| Underwriting | Default cover usually without medical checks | Health, job and income questions |
| Benefit period options | Often two years, five years or to an age; varies by fund | Usually a wider range, commonly including to age 65 |
| Extra features | Limited to what the fund's group policy includes | Can include optional extras, within APRA's limits for new policies |
| Payments | Paid through the fund; taxable income | Paid to you; taxable income |
| If you change job or fund | Cover can change or end, and can stop if the account goes inactive | Stays with you while you pay, whoever you work for |
Income protection replaces lost income; it isn't a bonus on top of it. Policies commonly reduce payments by other income you receive for the same period, such as sick leave, workers compensation, or another income protection policy. APRA's rules for new policies issued since 1 October 2021 also cap total benefits at 90% of your income at the time of claim for the first six months and 70% after that, counting all benefits under the policy.
Moneysmart points out that if you hold cover in more than one super fund, you may be paying twice for cover you can't fully claim. Check the offset clause in each policy before paying for a second one, and consolidate cover rather than stacking it.
You can't claim a personal tax deduction for income protection premiums paid through super. The ATO says so directly: there is no deduction where the policy is through your super fund and the premiums are deducted from your contributions. The fund itself generally claims the deduction for the premiums it pays, which is one reason cover can cost less in super.
Payments are taxable either way. Any payment you receive to replace salary or wages must be included in your tax return, and depending on who pays it, tax may be withheld before it reaches you.
Some retail insurers offer a split or super-linked arrangement: the core cover sits in super and optional extras sit in a linked policy outside it. Only the part you pay for personally outside super is deductible to you.
Log in to your fund's website or app, or check your latest statement and the fund's insurance guide. These are the details that decide whether the cover is enough.
A policy you own can make sense if you need a longer benefit period than your fund offers, want features the group policy lacks, want the tax deduction, or work in a job where your fund's occupation rating makes default cover expensive. It can also suit people whose super balance is small, because premiums in super come straight out of retirement savings that have less time to recover. Many people keep default cover in super as a base and add a personal policy with a longer waiting period on top, which keeps the combined premium down. Check how the two policies offset each other before you do.
It is usually cheaper and easier, because default cover needs no medical checks and premiums come from your super balance. Cover outside super usually offers longer benefit periods, more features and a tax deduction on the premiums. Many people use both.
No. The ATO says you can't claim a deduction where the policy is through your super fund and the premiums are deducted from your super. Only premiums you pay personally outside super are deductible.
Log in to your super fund's website or app, check your annual statement, or call the fund. It will show whether you have income protection, the monthly benefit, the waiting period, the benefit period and the premium.
Yes. Income protection payments replace salary or wages, so they are taxable income whether they come through super or from a personal policy. Depending on who pays it, tax may be withheld before you receive it.
You can hold both, but most policies reduce what they pay by other income you receive for the same period, including other income protection. Check the offset clauses in both before you rely on getting both payments.
Every super fund sets its own income protection terms within these rules. Your fund's insurance guide is the final word, and a licensed financial adviser can help you decide how to split cover between super and a personal policy.
Income protection replaces part of your pay. Life, TPD and trauma cover pay lump sums for the costs a monthly benefit can't reach.
