Income protection for teachers: what you already have, and whether you need more

What income protection does

Income protection insurance pays you a regular monthly benefit if you can't work because of illness or injury. It replaces part of your income, not all of it, and it pays for a set benefit period, such as 2 years, 5 years or up to age 65 or 67. Payments start after a waiting period, which is the time you must be off work before benefits begin.

It's different from the other two covers you'll see on your super statement. Life cover (death cover) pays a lump sum to your beneficiaries if you die. Total and permanent disability (TPD) cover pays a lump sum if you can never work again. Income protection is the one that keeps the bills paid during a long illness you recover from.

Cover inside super: what most teachers already have

Most super funds offer default insurance to members, and many include income protection. The premiums come out of your super balance, so they don't touch your take-home pay. Your fund depends on your state and employer: for example, the NSW Department of Education's default fund is Aware Super, QLD state school teachers default to Australian Retirement Trust (QSuper product), WA teachers default to GESB, and SA public sector employees default to Super SA.

• Default cover stops on inactive accounts. Funds must cancel insurance on accounts that haven't received a contribution for 16 months, unless you've told them to keep it. Teachers on long unpaid leave or career breaks should check this.
• New members under 25 don't get default cover automatically. You have to opt in.
• Low balances. New accounts with balances under $6,000 also don't get default cover automatically, but if you already have cover and your balance falls below $6,000, you usually keep it.
• Defined benefit schemes (such as some legacy state schemes) often have built-in disability benefits that work differently. Check your scheme's rules.
• Default cover is generic. Benefit periods inside super are often shorter (for example 2 years), and the definition of disability may be tighter than a policy you'd choose yourself.

Inside super vs outside super

Waiting periods and your sick leave

Teachers have an advantage most workers don't: generous, cumulative sick leave. In NSW, full-time permanent teachers get 15 days a year, fully cumulative. Victoria gives 15 days a year, WA 15 days a year and the ACT 18 days a year, all cumulative. Long service leave can also be used in some situations. That bank of paid leave can cover a longer waiting period, which makes premiums cheaper.

A new graduate has little sick leave banked, so a 30-day waiting period may matter more early in your career. A teacher with 10 years of service might have months of sick leave, so a 90-day waiting period could be reasonable. Most policies won't pay while you're on full pay from sick leave, so a short waiting period you'll never use is money wasted.

What a benefit is worth on teacher pay

Benefit levels vary between policies and over time. Following changes to individual disability income insurance led by APRA from 2021, many newer policies pay a higher share at first and a lower share (often around 70%) later in a claim. Check the replacement ratio, and whether it's based on your salary at the time of claim or an earlier figure.

Tax: premiums and payouts

Example: a teacher on the 32% marginal rate paying a $1,200 premium outside super saves about $384 in tax, so the real cost is about $816. Inside super, the same premium costs nothing from take-home pay, but your super balance is $1,200 lower (less the fund's tax deduction).

Workers compensation comes first for work injuries

If you're injured at work, or develop a work-related psychological injury, the state workers compensation scheme normally pays your wages and medical costs. Income protection is mainly for illness and injury outside work, or where workers compensation doesn't apply. Many policies offset workers compensation payments against benefits, so you don't get paid twice. See occupational violence and workers compensation for teachers.

• Report work injuries to your school and employer straight away, even if they seem minor.
• Ask your union for help with a claim; they handle these regularly.
• Keep income protection in place even if you think workers compensation covers you. Most long absences are from illness, not work injury.

What to check in any policy

We don't recommend insurers or products. Moneysmart (moneysmart.gov.au) has neutral guides to income protection and insurance through super. For advice on your situation, use a licensed financial adviser, and ask how they're paid.