Income Protection (sometimes called Salary Continuance) provides a monthly benefit if you are unable to work for an extended period due to illness or injury. For many people, their first experience with this type of insurance is through their superannuation fund.
At first glance, this can look like a simple and affordable way to have cover. Premiums come out of your super account, not your take-home pay, and some level of protection is often included automatically. But like TPD insurance, Income Protection inside super comes with important rules and limitations you need to understand.
How does Income Protection in super work?
Most super funds offer Income Protection as an optional extra, and some include it by default. Typical features include:
- A waiting period before payments begin – often 30, 60 or 90 days from when you stop working.
- A benefit period – how long payments will last (commonly 2 years, but sometimes 5 years or up to age 65).
- A monthly benefit – usually up to 70–75% of your regular income.
Premiums are deducted from your super contributions or balance, which makes cover easy to maintain.
The benefits of having IP in super
- Convenience – cover is often automatic and doesn’t require detailed underwriting.
- Group pricing – costs can be lower than buying an individual retail policy, especially if you’re younger or in good health.
- Cash flow friendly – premiums are paid from your super account rather than your bank account.
The limitations you need to know
While Income Protection in super can be a helpful safety net, there are several limitations:
- Shorter benefit periods – many super funds restrict benefits to 2 years. If you are still unable to work after that, payments stop. By contrast, retail IP policies can cover you through to age 65 or even later.
- Standard definitions – group policies tend to use more restrictive wording about what counts as being unable to work. This can affect your ability to claim.
- Cancellation risk – if your super account becomes inactive (no contributions for 16 months), the fund may cancel your cover unless you opt in.
- Tax treatment – payments from Income Protection are always taxed like regular income, whether held inside or outside super.
What happens if you also have TPD?
One trap to be aware of is how Income Protection in super interacts with TPD cover:
- In most cases, you can receive Income Protection payments while your TPD claim is being assessed, or even after a TPD payout.
- But in some group super schemes, Income Protection stops once a TPD claim is approved. The logic is that IP is for temporary incapacity, and a TPD payment confirms permanent incapacity.
This is not the case for all funds, but it’s worth checking your insurance guide or Product Disclosure Statement (PDS). If your fund has this rule, the timing of claims can be very important.
Combining super and retail cover
Because Income Protection in super often has shorter benefit periods, some people use a combination strategy:
- Keep the default 2-year IP cover inside super (low cost, easy to maintain).
- Add a retail IP policy outside super that starts after a 2-year waiting period and pays until age 65.
This way, you are covered for both short-term and long-term incapacity, and the second policy is cheaper because of the long waiting period.
If you’re considering this approach, make sure you check the rules about maximum total benefits (usually capped at 70–75% of your income across all policies). Just as important is understanding how the two policies interact. Definitions such as returning to work during a waiting period or the treatment of a recurrent claim may be fine under the shorter benefit policy but could trigger a restart of the waiting period on the longer benefit policy – creating an unexpected gap in cover. Check closely if you are using this strategy, or seek the advice of a qualified adviser to help avoid surprises.
Why reviewing your cover matters
It’s important not to assume that your Income Protection in super will be enough. A quick review can make a big difference:
- Check your waiting and benefit periods – would you cope financially if benefits only lasted 2 years?
- Check definitions – some funds cover you if you can’t do your own job, others if you can’t do any suitable job.
- Check your account activity – if your fund becomes inactive, you might lose cover without realising.
- Check how it interacts with TPD – does IP stop if a TPD benefit is paid?
The role of advice
Income Protection can be one of the trickiest types of insurance to get right. A specialist adviser can:
- Help you balance cost and protection by structuring cover inside and outside super.
- Explain the differences in definitions and benefit periods between funds and retail policies.
- Ensure you’re not left exposed after a short benefit period.
- Guide you if you ever need to make a claim, including navigating waiting periods and coordinating with TPD cover.
Not all financial advisers specialise in risk insurance. Look for one who regularly works in this space and understands the detail of how super-based and retail Income Protection policies interact. Head to our Adviser Directory for help.
Final thoughts
Income Protection inside super can be a valuable safety net, but it’s often only part of the picture. Default cover may be limited to short benefit periods or strict definitions. By understanding how your cover works – and where the gaps are – you can make sure your income, lifestyle and family are protected if illness or injury keeps you from working.
Check your super statement, read your fund’s insurance guide, and ask questions. And if you’re unsure, seek advice. A little attention now can save a lot of stress later.
