Insurance in super
Income protection insurance
Under the temporary incapacity condition of release, a benefit may only be paid in the form of a non-commutable income stream paid for the purpose of continuing (in whole or part) the gain or reward which the member was receiving immediately before the temporary incapacity.
Super funds are therefore generally prohibited from taking out income protection policies for their members where the policy terms and conditions provide any ancillary lump sum benefits, such as redundancy, crisis, rehabilitation, specific injury or home care benefits.
In addition, to satisfy the definition of temporary incapacity in the SIS regulations, a member must:
- have ceased to be gainfully employed due to ill-health, or
- have temporarily ceased to receive any gain or reward under a continuing employment arrangement due to ill-health.
Income protection policies offered within the superannuation environment must therefore require the member to be gainfully employed (including self-employed) at the time of suffering the incapacity. For example, a trustee is prohibited from taking out an income protection policy that would provide benefits in respect of a member who was not gainfully employed at the time of suffering the invalidity.
The 1 July 2014 changes also mean that income protection policies that pay a partial benefit where a member only reduced their hours of work due to incapacity, rather than ceasing them completely, cannot be offered within the superannuation environment. However, it is important to note that a policy that provided a partial benefit to a member who returned to work on a part-time basis after first completely ceasing to work is permitted.
Last modified: Wednesday, July 24, 2019