You may also be able to purchase your income protection cover in your super fund. This allows the premium to be paid by making contributions to superannuation or simply be deducted from your super account balance so it does not affect your cash flow. The latter option will reduce your retirement benefits.
The premium is a tax deductible expense to your super fund and can reduce the tax payable on contributions and investment income. The benefit to you will depend on your superannuation fund.
If additional contributions are made into super to cover premiums it is important to ensure you do not exceed the limits on how much can be contributed.
The proceeds in the event of a successful claim are paid from your superannuation fund as a temporary incapacity benefit and will be assessable income that is taxed at your marginal tax rate.
In some circumstances, even if an insurer would otherwise pay a benefit to your superannuation fund, they may not be able to do so unless a ‘condition of release’ is met. One example is if you are not gainfully employed at the onset of the illness and injury, and another is if you reduce working hours but do not fully cease gainful employment including paid leave such as sick leave.
