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Income protection insurance is designed to help you financially if you become unable to work for a short period of time. Some super funds offer it by default to most of their members. We take a look at some of the top-performing super funds that offer this kind of insurance.
What is income protection insurance?
Income protection insurance is a type of personal insurance you can take out that could provide financial support if you were temporarily unable to work because you became partially or totally disabled (such as if you suffered an illness or injury).
The amount you are likely to receive is typically a set percentage of your income, and is paid on a regular basis until you return to work, reach a certain age, or when the period specified in your insurance policy ends, whichever comes soonest.
According to insurance provider TAL, it is possible your income protection payout may be reduced if you have other support available to you, such as Workers’ Compensation.
In addition, Moneysmart notes that you will generally need to serve a waiting period of 14 days to two years between making a claim and receiving benefits under your income protection policy.
Anyone wanting to take out income protection insurance can do so:
- directly from an insurer
- through a financial adviser, or
- within their super.
What is income protection insurance in super?
A number of super funds offer members the option of taking out different types of insurance. The premiums are deducted from your super account balance on a regular basis. These insurance types include life insurance, Total and Permanent Disability Insurance (TPD), and Income Protection Insurance. Super funds could offer these types of insurance products by default or on an opt-in basis, depending on the super fund in question and the member’s circumstances, including their age and occupation.
A review of superannuation funds on Canstar’s database by the Canstar Research team found that about one in five funds included income protection insurance (IP) as a default when someone joined that fund.
Default insurance within super
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| Insurance Type | Percentage of products with cover as default |
|---|---|
| Life | 66% |
| TPD | 64% |
| IP | 21% |
Source: www.canstar.com.au – 14/09/2021. Based on superannuation products on Canstar’s database, with insurance cover as a default inclusion (i.e. eligible members are not required to opt-in).
Bear in mind that following recent law changes, not all new members are necessarily eligible for default insurance cover within their super. Regulator ASIC notes that insurance is no longer offered by default to new super fund members if they:
- are aged under 25, unless they’re working in a dangerous job, or
- have a super balance under $6,000.
However, ASIC says people in this situation who want to receive insurance cover through their super can do so by contacting their super fund.
What are the pros and cons of having income protection insurance in super?
Many Australians can get income protection insurance through their super fund – and in some cases may even have it by default. Some funds will allow you to tailor your income protection insurance, which can impact the price of premiums deducted from your super account. This could potentially make income protection more affordable for some people than obtaining it directly or via an adviser, as insurance premiums are deducted from your superannuation account balance rather than your own bank account.
While going through super can be a convenient option, it’s also important to be aware that the insurance premiums associated with holding insurance through superannuation are paid in the form of fees, which are deducted from your super balance and can gradually wear away at your nest egg. Additionally, income protection policies held through super may not always be as comprehensive as those offered outside super.
The decision of whether to hold income protection insurance through your superannuation really comes down to your own personal situation and determining what will be best for you. If you are considering income protection insurance, it could be a wise idea to obtain quotes that you could compare against the insurance offered as part of a super fund, and to read all-important documentation (such as the Product Disclosure Statement (PDS) and Target Market Determination (TMD)) before signing up to a new super fund or insurance policy.
You might also want to consider the performance of the super fund in which the insurance is being offered, as part of your decision. It’s important to note, however, that past performance is not a reliable indicator of future performance.
Please note these performance figures reflect net investment performance (returns minus investment tax, investment management fees, the maximum applicable ongoing management fees and membership fees).
Top performing super funds with income protection insurance: one-year returns
The following table contains details of the superannuation funds that offer income protection insurance on Canstar’s database based on someone aged 30-39. This table has been sorted by one-year performance (highest to lowest).
Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.
Top performing super funds with income protection insurance: three-year returns (average per annum)
The following table contains details of the superannuation funds that offer income protection insurance rated by Canstar based on someone aged 30-39. This table has been sorted by three-year performance (highest to lowest).
Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.
Top performing super funds with income protection insurance: seven-year returns (average per annum)
The following table contains details of the superannuation funds that offer income protection insurance rated by Canstar based on someone aged 30-39. This table has been sorted by seven-year performance (highest to lowest).
Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.
Cover image source: rawf8/Shutterstock.com
This content was reviewed by Sub Editor Tom Letts as part of our fact-checking process.
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