Income Protection and Redundancy: What's Covered and What Isn't
- 3 days ago
- 8 min read
Redundancy and illness or injury often happen at the same time, or close to it. An employer making redundancies may target employees who have been on long-term sick leave. A person managing a chronic health condition may find themselves unable to resist a redundancy that they never would have accepted if they were well. Or someone may lose their job through genuine redundancy while also dealing with a medical condition that separately prevents them from returning to work.
If you are in any of these situations, the question of whether your income protection insurance covers you is urgent and the answer is not simple. The short version is this: redundancy itself is not covered by income protection insurance through superannuation. But if illness or injury was also preventing you from working, you may still have a valid claim, and the two situations can exist simultaneously.
Over $1 billion in super insurance benefits goes unclaimed in Australia every year. A significant portion of that involves people who assumed they couldn't claim because they had been made redundant. In some of those cases, they were wrong.
50% of Australians don't know their superannuation includes insurance cover. That number is even higher among people who have recently lost their job.
Being made redundant does not automatically disqualify you from an income protection claim. If illness or injury was independently preventing you from working at the same time, your entitlement may be separate from the redundancy.
What Is Income Protection Insurance and What Does It Cover?
Income protection insurance (sometimes called salary protection insurance or salary continuance insurance) is a type of cover held in most Australian superannuation funds. It pays a monthly benefit when you are unable to work due to illness or injury.
The key words in that definition are "illness or injury." Income protection through super is medically-triggered cover. It requires that the reason you cannot work is a health condition, supported by medical evidence from a treating practitioner.
It does not cover:
Involuntary redundancy or retrenchment
Voluntary resignation
Being unable to find work after leaving a job
Job loss due to business closure or restructure (absent a separate medical reason)
There is a product called "redundancy insurance" or "unemployment protection insurance" that covers job loss due to retrenchment, but this is a separate product entirely from income protection insurance through super, and it is not commonly held through superannuation funds.
What Your Super Fund Won't Tell You About Income Protection and Redundancy
If you have been made redundant and you also have an illness or injury, your fund is unlikely to contact you to explain your entitlements. A few things funds routinely do not tell members in this situation:
The two triggers are assessed separately. Whether your income protection covers you depends on whether your medical condition satisfies the policy's definition of disability, not on what your employer did. If your illness independently prevents you from working, that entitlement exists regardless of the redundancy.
Your claim date may pre-date the redundancy. If your illness or injury began before your redundancy, your income protection entitlement may have started before you lost your job. Back payments may be owed from when your waiting period ended.
Cover can continue after you leave an employer. Your income protection insurance through super is tied to your superannuation account, not to your employment. As long as your account remains active with sufficient balance, your cover remains in force even after you leave that employer.
A redundancy payment does not offset your income protection. A redundancy payout from your employer is a separate entitlement under the Fair Work Act. It is generally not treated as income for the purposes of an income protection offset calculation, though this should be confirmed against your specific policy terms.
The Central Question: Were You Unable to Work Due to Illness or Injury?
For an income protection claim to succeed, the defining question is always the same: was your inability to work caused by illness or injury?
If yes, and if that condition is supported by medical evidence, and if your super fund had active cover when that condition began, you may have a valid claim, even if you were also made redundant around the same time.
Consider these scenarios:
Scenario 1: You have been off work for three months with a serious back injury. During that period, your employer restructures and makes your position redundant. Your income protection entitlement is based on your back injury, not on your employment status. The redundancy does not affect your claim.
Scenario 2: You were made redundant without any health condition affecting your ability to work. You then try to find a new job but cannot. This is not an income protection claim. Income protection requires a medical trigger.
Scenario 3: You have been struggling with severe depression for six months and your performance has been impacted. Your employer offers a redundancy package and you accept it. You are still unable to work due to your mental health condition. Better Claim would assess whether your depression independently satisfies your policy's definition of disability, separately from the redundancy.
Scenario 4: You are made redundant and shortly afterwards develop a health condition that prevents you from working. If your cover was active at the time your condition began (your account must have been active and contributing), you may have a valid claim. The fact that you were not employed at the time the condition began does not automatically disqualify you from super-linked income protection, though this depends on your specific policy definition and whether you were still seeking work at the time.
Do You Qualify? Income Protection and Redundancy Eligibility
You may be eligible to make an income protection claim through your super even after being made redundant if:
Your superannuation account held active income protection or salary continuance cover when your illness or injury began
Your account balance was sufficient to maintain that cover at the relevant time
An illness or injury independently prevented you from working, supported by medical evidence
You were continuously unable to work for at least as long as your policy's waiting period (typically 30, 60, or 90 days)
Your inability to work is caused by the illness or injury, not solely by the absence of available work
If you are unsure whether your situation meets these criteria, Better Claim offers a free eligibility check to assess your specific circumstances before you commit to anything.
What Redundancy Payments Mean for Your Claim
A redundancy payment from your employer is made under a separate legal framework (the Fair Work Act 2009 or your enterprise agreement). It is not income protection. It does not replace it, and in most cases it does not offset it.
However, there are a few interactions worth understanding:
Unused annual leave and long service leave paid out on redundancy may be treated differently to the redundancy component itself under your policy's offset provisions. Check your PDS carefully or ask Better Claim to review this.
Centrelink JobSeeker payments received after redundancy may offset your income protection benefit if your claim is also active. If you are receiving JobSeeker and then make an income protection claim, the insurer may reduce your monthly benefit by the Centrelink amount. Plan for this with Better Claim before lodging.
Income earned in a new job. If you recover from your condition and return to work in a new role after being made redundant, your income protection benefit will typically cease or reduce depending on the amount you earn. Notify your insurer and Better Claim of any return-to-work income.
Redundancy Insurance: What It Is and Where to Find It
Redundancy insurance, also called unemployment protection insurance, is a separate product that pays a benefit if you lose your job involuntarily. It is not the same as income protection insurance.
Redundancy insurance is not commonly held through Australian superannuation funds. It is typically a standalone add-on to a home loan, credit card, or consumer finance product, or purchased separately.
If you believe you hold redundancy insurance, check:
Your mortgage documentation (some home loan packages include mortgage protection or redundancy cover)
Your credit card or personal loan terms
Any standalone income protection policy purchased through a financial adviser (some include involuntary redundancy as a rider)
If you are not sure whether you have this cover, check with each financial institution you hold products with.
Can You Claim Income Protection and TPD at the Same Time?
Yes. Income protection and TPD are not mutually exclusive. If your condition may be permanent, Better Claim often recommends lodging both claims simultaneously. Income protection pays monthly benefits during the TPD assessment period. If TPD is approved, offset provisions apply and income protection payments cease, but you receive the TPD lump sum. Lodging both protects your financial position during what can be a lengthy assessment process — this applies whether or not redundancy is also involved.
How Better Claim Can Help
If you have been made redundant and you also have a health condition that independently prevents you from working, your situation may support an income protection claim that you have not yet made. Better Claim assesses both the medical and the policy elements together.
Our service includes:
Free eligibility check to assess whether your condition satisfies the income protection definition independently of the redundancy
Review of your policy's offset provisions and how your redundancy payment interacts
Identification of the correct claim date, including any back-payment entitlements
Coordination of medical evidence, including a certified copy of government-issued photo ID (passport or driver's licence), and full claim lodgement
Ongoing management of the claim once approved
Appeals and AFCA complaints for denied or disputed claims
Better Claim works on a no-win, no-fee basis. You pay nothing unless your claim succeeds.
FAQ
Does income protection insurance cover redundancy?
No. Income protection insurance through superannuation only covers inability to work due to illness or injury. It does not cover job loss from redundancy, retrenchment, or inability to find work. Redundancy insurance is a separate product.
I was made redundant while I was on sick leave. Can I still claim income protection?
In many cases, yes. If your illness or injury independently prevented you from working before or during the redundancy, your income protection entitlement is assessed based on the medical trigger, not your employment status. Better Claim can assess whether your specific circumstances support a claim.
What if my cover lapsed after I was made redundant?
Your income protection cover may have continued for a period after the redundancy if your super account remained active with a sufficient balance. The cover may have eventually lapsed if no contributions were made. Better Claim checks the exact period your cover was active before advising on your claim date.
Will my redundancy payment reduce my income protection benefit?
A genuine redundancy payment is generally not treated as income for the purpose of an income protection offset calculation. However, leave entitlements paid out on termination may be treated differently. Better Claim reviews the specific offset provisions in your policy before lodgement.
Can I claim income protection and apply for Centrelink at the same time?
Yes, though the two interact. Income protection benefit payments are treated as income by Centrelink and may reduce your JobSeeker or DSP entitlement. Conversely, Centrelink payments you receive may offset your income protection benefit under your policy terms. Better Claim advises on this before you proceed.
Conclusion
Income protection and redundancy are separate entitlements, assessed independently. Redundancy does not cover you for illness or injury, and income protection does not cover you for job loss. But if both happened at the same time, or close to it, a valid income protection claim is based on your medical condition, not on what your employer decided.
If you are currently unable to work due to illness or injury and you have been made redundant, it is worth finding out whether an income protection claim exists separately to your redundancy entitlements. Better Claim offers a free eligibility check that confirms your position clearly. We work on a no-win, no-fee basis: there is no upfront cost, and you pay nothing if your claim does not succeed.
You have already been through enough. Let us handle the paperwork.
Disclaimer: This article is intended as general information only and does not constitute legal, financial, or insurance advice. Super insurance entitlements vary between funds and individual circumstances. Better Claim recommends seeking professional advice specific to your situation. For complaints or disputes, contact AFCA at afca.org.au.
Resources
AFCA: Dispute resolution for super insurance claims
ASIC MoneySmart: Income protection insurance guide
Fair Work Australia: Redundancy entitlements and rights
ATO: Super fund information
