What super funds offer
Moneysmart’s income protection page says most super funds offer default income protection, and its first point on buying income protection is to check whether you already hold it through super. Which kinds of cover a fund offers, and when cover in super starts, are set out on Moneysmart’s page on insurance through super.
Side by side
| Question | Held through super | Held outside super |
|---|---|---|
| Where the premium comes from | Deducted from the super balance, which Moneysmart notes reduces retirement savings over time | Paid from your own pocket |
| A deduction for the premium (ATO) | Not claimable where the policy is through your super fund and the premiums are deducted from your contributions | Only premiums paid to protect income (salary and wages) are deductible |
When cover in super can stop
Cover held through super can also end without a claim, both by law and under a fund’s own rules. Moneysmart’s page on insurance through super sets out when.
The Act reaches cover in super too
Section 32 of the Insurance Contracts Act carries the Division that holds the remedies for a relevant failure over to cover under a group life contract. Its first subsection reads:
“(1) This Division extends to the case where there was a relevant failure in respect of a proposed life insured under a group life contract, as if: (a) the insurance cover provided by the group life contract in respect of the life insured were provided by an individual contract of life insurance between the insurer and the insured; and (b) the group life contract had been entered into at the time when the proposed life insured became a life insured under the group life contract.”
Insurance Contracts Act 1984, section 32(1)Subsection (2) settles the timing for a member of a superannuation, retirement or other group life scheme: a relevant failure that happened after the person joined the scheme, but before the cover was provided, is taken to have happened before they became a life insured under the contract. The guide on what follows if something was not disclosed sets out those remedies section by section.
Claiming, and the tax on payments
Moneysmart’s page on early access to super says that if you have income protection in your super, you may be able to claim while illness or injury keeps you from working for a period, and that the cover and conditions depend on the policy. ASIC’s guide to internal dispute resolution, RG 271, says a complaint about insurance in super may be lodged with either the insurer or the trustee. The claims and complaints guide follows that path.
Wherever the policy sits, the ATO says a payment that replaces salary and wages under an income protection policy must be included in your tax return, whether it is paid regularly or as a lump sum. A payment under the policy for personal injury or total and permanent disability is capital, the ATO says, and might be assessable as a capital gain. These are the ATO’s words as its page read on 8 October 2026, during the 2026-27 year; its page is the one to check for the year you lodge.