Salary continuance insurance: what you need to know

What is salary continuance insurance?

Salary continuance insurance describes income protection cover held specifically in a super fund. This means you pay insurance premiums out of your super balance, rather than paying a provider directly. It also means that in the event of a claim, any benefits will firstly be paid to your super fund before being released to you, provided you meet certain conditions.

Both salary continuance and income protection insurance are designed to provide a stream of income if you can’t work due to injury or illness.

Is salary continuance insurance the same as income protection?

Salary continuance and income protection insurance will both generally pay up to 90% of your pre-tax salary for the first six months and up to 70% for a set period of time after six months, if you’re unable to work due to injury or sickness, but certain monetary caps apply.

To receive benefit payments, insurers will typically require you to be totally or partially disabled or have a specific injury or sickness that renders you unable to work.

The main difference between the two types of insurance is that salary continuance is typically only available through a super fund.

What is a salary continuation benefit?

A salary continuation benefit is the amount of money you’re paid through your super fund’s policy, and is usually made monthly, starting at the end of your waiting period, which is often between 30 to 90 days.

For salary continuance policies, the benefit period—the maximum amount of time you can receive payments—will typically be two or three years, depending on the provider. Benefits will stop at the end of this period, even if you’re still unable to work.

In some circumstances, payments will stop before the end of the benefit period, such as if you’re no longer injured or sick, return to work, stop being under medical care, reach the benefit expiry age or retirement age as specified by your policy (usually this is 60 or 65 years of age), or pass away.

What does salary continuance insurance cost?

The cost of your salary continuance insurance can vary depending on your age, gender and chosen waiting period, benefit period and coverage amount. Your premiums are usually deducted from your super balance monthly, but this frequency can vary depending on the policy and provider.

Can you claim salary continuance insurance on tax?

According to the Australian Taxation Office (ATO), salary continuance premiums (where the premiums are deducted from your super contributions) are not tax deductible for individuals. The ATO says salary continuance cover is only tax deductible for the super fund.

What are the pros and cons of salary continuance insurance?

Pros

• May have less of an impact on your cash flow as premiums are deducted directly from your super balance rather than out of your take home pay

• Premiums may be cheaper than direct income protection policies because super funds tend to buy policies in bulk

• Some super funds may automatically accept you for cover without requiring a health check, which may allow cover for pre-existing conditions.

Cons

• Premiums are not tax deductible for individuals

• As a group policy (a single contract covering a group of people) the benefits and features of salary continuance cover may be limited and may not provide enough cover for your individual circumstances

• There may be delays in receiving benefits because the provider pays the benefit to the super fund, which then pays the benefit to you

• If you change super funds, your super contributions stop or your account balance falls below a certain amount, your cover may stop and you could be left uninsured.

What is income protection insurance?

Income protection insurance can generally be held either inside or outside super. Income protection insurance through your super works in the same way as salary continuance insurance, but a direct income protection insurance policy works differently.

Unlike salary continuance, which is usually purchased in bulk for a group of super fund members, direct income protection insurance is designed to be more tailored to the individual policyholder.

For example, if you take out a direct income protection policy, you may be able to choose the waiting period and payment frequency. Keep in mind that the longer the waiting period you choose, the lower the premium you’ll generally pay.

In addition, there may be more inclusions and options offered, such as rehabilitation, accommodation and homemaker benefits.

If you’re interested in a direct income protection insurance policy, you can compare your options with Canstar. It’s important to read any relevant documentation, such as the Product Disclosure Statement (PDS) and Target Market Determination (TMD), for any policy you’re considering.

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What benefit payments apply for income protection outside of super?

Direct income protection policies often come with the option to select a defined benefit period, or to request that benefits continue to be paid until you turn 70 years old.

Can you claim income protection outside of super on tax?

According to the ATO, you can claim a deduction on the cost of premiums you pay for insurance against the loss of your income, unless your superannuation fund pays the premiums.

What are the pros and cons of income protection insurance outside of super?

Pros

• Flexibility to tailor your cover to suit your individual circumstances

• Flexibility to choose your waiting period

• Tax deductible

• Shorter waiting periods compared to most super funds. Payments for specific injuries or illnesses can be made with no waiting period or required time off work

• Some providers may allow you to extend your cover to give you some short-term financial assistance in case you become involuntarily unemployed (this option is typically not available under salary continuance policies)

Cons

• Income protection insurance purchased at an individual level outside of super may be more expensive than salary continuance insurance purchased in bulk by your super fund

• May have an impact on your cash flow, as premiums are paid with your take home earnings

• May be more difficult to get coverage if you have pre-existing conditions

What is split income protection?

Some providers also offer split income protection insurance, where income protection is divided up both inside and outside of super. This allows you to pay part of your overall premiums via your super balance, while also having access to the features that are available for insurance outside of super. It could be worth contacting your insurance provider if this is an option that appeals to you.

Does salary continuance insurance cover redundancy?

Generally speaking, salary continuance insurance does not cover you for redundancy or ‘involuntary unemployment’. It may be possible to take out a limited form of insurance against redundancy, however, there’s no such thing as standalone ‘redundancy insurance’. Rather, you’ll need to look at taking it out as an optional extra on an existing income protection policy—if your provider allows for this.

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