Do you have enough disability cover?

Disability cover (usually total and permanent disability, or TPD) pays a lump sum if illness or injury leaves you permanently unable to work. It's often bought alongside life cover — in fact death and TPD are commonly linked, so a TPD payout typically reduces the life cover by the same amount.

The definition is everything

Whether a claim is paid comes down to which definition of "total and permanent disability" your policy uses. This is the single most important thing to check:

• Own occupation — you're unable to work again in your job or field. The most claimant-friendly definition, and the more expensive. A carpenter with a back injury or a surgeon with a tremor can qualify even if they could retrain for other work.
• Any occupation — you're unable to work again in any job suited to your education, training or experience. Much harder to claim, because the insurer can argue you could do some other kind of work — a common source of dispute.
• Activities of daily living (ADL) — you can't perform basic self-care tasks (bathing, dressing, feeding, toileting, mobility) without help. The strictest test of all, often applied where you weren't working when disabled.

A key trap: cover held inside super is almost always limited to the strict "any occupation" definition. APRA rules effectively stop super funds offering "own occupation", because super law only permits release on the "any occupation" permanent-incapacity ground. So even if you can never return to your specialised career, an inside-super policy may not pay if the insurer thinks you could work somewhere else. Some "super-linked" policies split the cover to combine super's tax efficiency with an "own occupation" definition held outside — you claim once, and the broader definition applies if the strict one fails.

How much do you need?

A TPD lump sum has to do more than replace income — it has to fund a changed life. Add up:

• Debts you'd want to clear (especially the mortgage);
• Future living costs — roughly your after-tax income times the years to retirement;
• Medical, rehabilitation and ongoing care costs not covered by Medicare or private health;
• Home and vehicle modifications for accessibility;
• Education costs for your children;
• less your existing cover, savings, and any government assistance (NDIS, Centrelink) you might receive.

Use the Disability cover calculator below to run your own numbers, and the premium estimator for indicative cost.

Inside super or outside super?

• Inside super — cheaper on cash flow (premiums from pre-tax contributions), but stuck with the strict "any occupation" definition, and the payout can be taxed up to around 22% if you're under 60 when you withdraw it (the exact rate depends on your age, the sum insured and your years to retirement). It also erodes your retirement savings.
• Outside super (retail) — you can get the broader "own occupation" cover, the payout is generally tax-free and paid directly to you without super conditions of release, and you can tailor the policy. Premiums come from after-tax income.

Comparing policies

Comparison sites help you weigh premiums and benefits, but they usually cover only a subset of insurers and may earn commission — a starting point, not the whole market. Also watch for:

• Waiting periods — commonly three to six months off work before you can claim;
• Pre-existing condition exclusions — though these generally don't apply if you were working without restriction when cover started;
• Stepped vs level premiums — stepped start lower but rise with age (dearer over time); level start higher but stay flatter, though "level" usually only holds to a set age before converting to stepped.

Whatever you choose, read the Product Disclosure Statement carefully and answer the insurer's questions honestly — the same duty to take reasonable care not to make a misrepresentation applies, and a dishonest answer lets the insurer reduce or decline the claim.

Calculate disability cover needed → Download — Components of disability cover →

Do I have enough income protection?

Income protection (also called salary continuance when it's inside super) replaces part of the income you lose while you're unable to work through sickness or injury. Unlike life or TPD cover, which pay a single lump sum, it pays a monthly benefit while you're off work — so it protects what is often your largest asset: your ability to earn.

How much it pays

For policies issued since APRA's reforms of 1 October 2021, the benefit is capped at 70% of your pre-disability income (some insurers pay up to 90% for the first six months of a claim, then step down to 70%). Older "agreed value" policies and some employer salary-continuance arrangements may still carry the previous 75% tier — check your Product Disclosure Statement for your exact figure. New policies are indemnity only: your benefit is based on your actual income in the 12 months before the claim, not a figure locked in years earlier. The cap is deliberate — keeping you below full income preserves the incentive to return to work.

Benefit payments are taxed as income, just as your salary would have been. The flip side: where the policy is held personally outside super, the premiums are generally tax-deductible — which softens the real cost.

Waiting period and benefit period

Two settings drive both your cover and your premium:

• Waiting period — how long you must be off work before payments start. Common options are 30, 60 or 90 days (90 is the most common). A shorter wait means a higher premium. Match it to how long your sick leave and savings could carry you.
• Benefit period — how long payments continue: commonly 2 years, 5 years, or to age 65. A longer benefit period costs more, but a 2-year cap can leave you exposed if a serious condition keeps you out of work for good.

Note that after 24 months on claim, most new policies switch from assessing your "own occupation" to "any occupation" — a tougher test to keep being paid.

Watch for double-up: the offset rules

Your super fund often already includes income protection (salary continuance), so check before you pay for more. You can't "double dip" — if you have cover from more than one source, the insurer reduces your benefit by amounts you receive elsewhere, because the total can't exceed your replacement cap. Sources that are commonly offset include:

• regular payments from another insurance policy;
• regular payments from a superannuation plan;
• workers compensation;
• a motor accident claim;
• and payments under other state or federal legislation.

Holding two full policies is usually wasted premium — the offset rules mean you still can't collect more than your cap.

What it doesn't cover, and comparing policies

Income protection is not unemployment insurance — it only pays if illness or injury stops you working, not if you're made redundant, resign or are dismissed. Many modern policies do include a partial disability benefit that tops up your income as you return to work part-time. Comparison sites let you weigh premiums and benefits, but they usually cover only a subset of insurers and may earn commission, so treat them as a starting point. Read the PDS, and answer the insurer's questions honestly — the duty to take reasonable care not to make a misrepresentation applies here too.

Calculate your financial exposure → Download — Income protection essentials →

Do I have enough critical Illness cover?

Critical illness cover (also called trauma or recovery insurance) pays a tax-free lump sum if you're diagnosed with one of a defined list of serious medical conditions. It fills a specific gap: it pays out on diagnosis — not on death (life cover) and not on being permanently unable to work (TPD). You can claim it, recover, and go back to work, and still keep the money.

What it covers

Policies typically list 30 to 60 conditions, with the commonly covered ones including cancer, heart attack, stroke, coronary bypass surgery, major organ transplant, kidney failure, multiple sclerosis, severe burns, and loss of limbs or sight. The catch is in the definitions: each condition must meet the insurer's precise wording (for example, a heart attack must meet specified troponin and ECG thresholds), so two policies listing "heart attack" may not pay in the same circumstances. Many claims fail because a diagnosis doesn't quite meet the policy definition — so the wording matters as much as the list. Note that mental health conditions are generally not covered.

Cover often comes in two tiers: standard (a core group of major conditions) and plus/comprehensive (adding less severe or early-stage conditions, often paying a partial benefit — say 10–25% of the sum insured — for earlier-stage diagnoses).

Waiting and survival periods

Two timing rules commonly apply, and they're easy to confuse:

• Qualifying (waiting) period — you generally can't claim for cancer, heart attack or stroke in roughly the first 90 days of the policy, to stop claims for conditions already developing when cover started.
• Survival period — you must survive a short time after diagnosis, commonly 14 days (some older policies say 30), before the benefit is paid.

How the payout is used, and the tax

The lump sum is paid regardless of your ability to work, and there are no restrictions on how you use it — medical treatment not covered by Medicare or private health, clearing the mortgage or other debts, home modifications, or simply replacing household income while you focus on recovery. Where the policy is held personally, the benefit is generally tax-free. Unlike income protection, the premiums are not tax-deductible.

How you hold it

Critical illness cover generally cannot be held inside super — superannuation law has prohibited new trauma cover in super since 1 July 2014, because a trauma diagnosis doesn't meet a super condition of release. You hold it either as a standalone policy or linked to your life cover. If it's linked, a trauma claim usually reduces your life cover by the same amount — though some policies offer a "buy-back" or reinstatement option to restore the life cover after a trauma claim.

Because trauma cover is typically claimed earlier in life than life insurance, it's often the piece that funds the gap in the first months of a serious illness. As always, compare on definitions and claim-paid rates rather than premium alone, read the Product Disclosure Statement, and answer the insurer's questions honestly — the duty to take reasonable care not to make a misrepresentation applies here too.

Calculate your financial exposure → Download — Components of trauma cover →