Income Protection under super during Covid-19
As the economic impact of Covid-19 continues to emerge, one thing superannuation members must be careful of is how their Income Protection policies will be affected should the need to claim arise. This is especially important for clients who have Income Protection which is owned under super. This applies to both group insurance and retail Income Protection policies that are wholly paid for from superannuation.
To have an Income Protection benefit (sometimes called salary continuance for group cover) paid under super, that member must meet a condition of release. For Income Protection policies that condition of release is ‘temporary incapacity’. Temporary incapacity means that the member has ceased employment due to injury or illness. This means that if the member/insured person is unemployed at the time of suffering illness or injury they will not meet the ‘temporary incapacity’ condition of release as the illness or injury is not the reason for ceasing employment. And therefore no claim can be paid.
With unemployment levels expected to rise significantly due to Covid-19, this may impact a number of people.
Most retail insurers now offer the option of paying a small portion of Income Protection outside of super. This means the should the need for a claim arise the superannuation trustee does not have to get involved nor does the insured person have the meet the conditions of release.
Whilst there are both advantages and disadvantages to owning insurance through super, it is important to make sure the policy is set up correctly.
. The information is general in nature and should not be considered as personal adviceContact us for a quote