I" ve Got Income Protection Insurance Through My Super Fund ... Don"t I?

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In Australia, it takes exceptional circumstances to make it possible to access your saved superannuation before you hit retirement age. However, it is possible to use the money to 'prepare' for your retirement, and this leads to insurance policies like life insurance, TPD insurance and income protection insurance being frequently offered through super funds. Since the mid-80s most new industry funds started to provide basic life insurance cover, and TPD and income protection insurance are now common also. Unfortunately, though, many of us don't pay as much attention to the terms, conditions and benefits of insurance when it comes through our super funds and industry analysts say that an increasing number of people aren't getting what they expect from a super-provided income protection policy.

Super-based Income Protection - Good Value?
There is a significant under-insurance problem in Australia - currently only 6% of people have income protection insurance outside their super fund. Most of us tend to take the stance that "It wont happen to me", and end up finding that of all the things that can happen to us, there are usually one or two that do! From this perspective, industry analysts say that having 'some' income protection provided through your super fund is definitely better than having 'none'.

However, most people accept the default option on their life, TPD and income protection policies when they join a super fund. This means that the average percentage of income covered by an insurance policy is only 25%, with expiration of the cover after 1 or 2 years.

Super-based income protection is quite competitively priced. However, when you don't get what you expect, it can be worse than having nothing.

Am I Too Old?
Additionally, many super funds will stop covering you well before retail income protection insurance will (at age 65). Given that premiums rise as you get older, you may well find that your super-based insurance has expired, and because of your age there are no affordable retail products available.

Opposites Attract
However, using the two types of income protection insurance - super-based and retail - in tandem to give you low premiums and a high level of cover can be an excellent strategy. For example, you'll find when getting income protection insurance quotes that longer waiting periods become far cheaper than the minimum wait of 14 days, or even the wait period of 30 days. Common strategies you can use is having an income protection insurance policy (salary continuance) with a 2 year benefit period in your super fund; and also having a retail income protection insurance policy with a 2 year waiting period and benefit period till age 65.
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