What’s the difference between Income Protection through super and a standalone policy?


Income Protection Insurance can help you cover costs if you’re unable to work due to illness or injury. Rather than a lump sum payment, it provides a monthly benefit for a set period of time. You can use this money to keep paying your expenses and assist with medical treatments, so you don’t fall behind financially while you recover.

When getting coverage, you can either take out a policy with your super fund, or buy a standalone policy directly from an insurance provider like AAMI.

Income protection through super: What it is and how it works

Income protection through super will form part of your superannuation account, with premiums deducted from your super balance.

In contrast, purchasing income protection directly from an insurance provider may offer benefits such as flexibility, tax deductibility and the option to tailor your policy to your specific needs. However, premiums are paid out of your own pocket rather than through your superannuation fund.

When you purchase a policy directly you will nominate the following:

  • The benefit amount. This is a set amount of your regular pre-tax income. With AAMI Comprehensive Income Cover, you can receive up to 75% of your average income over the previous 12 months, up to $10,000 a month.
  • The benefit payment period. This is the maximum amount of time for the benefit to be paid. AAMI can pay a benefit for up to five years.
  • The waiting period. This is the amount of time that passes between your injury or diagnosed illness, and the date your benefit begins paying out. This is usually between 14 and 90 days.

Advantages and disadvantages of income protection through super

Pro: Convenient

One of the biggest advantages of choosing your super fund’s income protection policy is the convenience. Premiums are automatically deducted from your super balance, so you don’t need to find money in your monthly budget to cover your premiums.

Pro: Low cost

Because super funds have so many members, they often purchase policies in bulk which can mean you benefit from lower premiums.

Con: Reduces your retirement savings

It’s wise to keep an eye on your super balance, as insurance premiums can reduce your retirement savings, and you lose the benefit of that money compounding over time.

Con: The level of cover may not meet your needs

The downside of insurance held within super is that the policies are usually generic. You don’t have the flexibility to tailor cover to the needs of you or your family. You also need to consider that your insurance cover could end suddenly if you change funds or stop making contributions.

Advantages of getting income protection from direct insurers

If you purchase income protection directly from an insurer, you'll have access to flexible policies that can be customised to fit your specific needs and budget. In addition, there are often additional benefits and tax deductibility to take advantage of. So, you can have peace of mind knowing you have a policy that's tailored to you, while also getting some extra perks along the way.

Pro: Comprehensive cover and more features

Policies purchased directly from an insurer generally offer a greater level of cover.

Some policies also have unique features, like AAMI’s Comprehensive Income Cover Returning to Work Benefit – a special provision for customers who can return to work, but in a reduced capacity.

Pro: Tax deductibility

Another benefit of buying insurance directly is the tax reductions. When you purchase a policy directly from an insurer, you can claim the premiums as a tax deduction. For policies held within your super fund, you can’t claim the cost at tax time.

How to choose the right income protection policy

To select the right policy for you, consider the benefits and features that will make the biggest impact on your life if you need to make a claim. Here’s a few tips to help you work out the best way forward.

Review your needs

Are you the main income earner, are you self-employed or do loved ones rely on your income? If so, a comprehensive and tailored policy may best suit your needs.

Consider your savings

If you have savings to lean on, you could nominate a longer waiting period to reduce your premiums.

Nominate your budget

It can seem more affordable to pay for your policy through super as you don’t need to allocate money in your budget, but remember – these premiums reduce your retirement savings. Also, insurers often provide multiple policy discounts and other benefits when you buy direct. At AAMI, if you opt to pay your insurance premium annually, one month of cover is free!

Discover AAMI Income Protection Insurance

Want to know more about the benefits of Income Protection? Explore AAMI Income Protection Insurance online or give us a call on 1300 407 322.

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AAMI Life Insurance products, other than in some circumstances the Redundancy Benefit, are provided by TAL Life Limited ABN 70 050 109 450 AFSL 237848 (TAL Life) which is part of the TAL Dai-ichi Life Australia Pty Limited ABN 97 150 070 483 group of companies (TAL). TAL companies are not part of the Suncorp Group. TAL companies use the AAMI brand under licence from the Suncorp Group. Redundancy Benefit issued on or before 31st March 2020 was offered by AAI Limited ABN 48 005 297 807 AFSL 230859 (AAI) trading as AAMI which is part of the Suncorp Group. New Redundancy Benefit policies and renewals offered from 1st April 2020 are issued by TAL Life. The different entities of TAL and the Suncorp Group of companies are not responsible for, or liable in respect of, products and services provided by the other.

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