Category: Basics
Trauma cover pays a tax-free lump sum on diagnosis of a listed Critical Illness Event regardless of work capacity, while Income Protection pays a monthly benefit tied to your disablement and income loss. They are different products covering different financial impacts of a serious illness or injury.
General advice only. The structures and PDS references below are factual product information, not a personal recommendation.
| Feature | Trauma cover (Critical Illness) | Income Protection | |---------|----------------------------------|--------------------| | Trigger | First diagnosis of a listed Critical Illness Event meeting PDS severity criteria | Inability to work due to sickness or injury, after waiting period | | Payout shape | Single tax-free lump sum (commonly 14-day survival period applies) | Monthly benefit, capped at 70% of pre-disability earnings under APRA's October 2021 reforms | | Work capacity test | None. Pays even if you return to work | Yes. Disablement test (own occupation, any occupation, or hours-based) must be met for ongoing payment | | Tax on premiums | Generally not deductible to a personal-name policyholder (ATO TR 95/35) | Generally deductible under ITAA 1997 s8-1 where premiums are for income replacement | | Tax on benefit | Generally tax-free to original beneficial owner (ITAA 1997 s118-37) | Assessable income under ITAA 1997 s6-5; PAYG withholding applies | | Super eligibility | Not available inside super for new policies since 1 July 2014 (SIS Reg 4.07D) | Available inside super (subject to Conditions of Release at claim) | | APRA Oct 2021 reforms | Do not apply to Trauma cover | Apply: 70% replacement cap, 5-year max benefit period on new agreed-value contracts withdrawn, income-at-claim testing | | Typical benefit period | One-off lump sum; reinstatement options for unrelated future events | 2 years, 5 years, or to age 65/70, depending on policy |
Every panel insurer pays the Trauma sum insured on first diagnosis of a listed Critical Illness Event from the PDS catalogue. AIA Crisis Recovery pays on Cancer, Coronary, or Other Serious Crisis Events meeting the medical definition (AIA Priority Protection PDS v32, 9 November 2025, Section 4). TAL Critical Illness Insurance pays on a Critical Illness Event listed in the Section 2.3 table (TAL Accelerated Protection PDS, 12 December 2024, Section 2.3). The insured must survive 14 days from the date of the event for the benefit to be payable (Zurich Wealth Protection PDS, 1 November 2025; Encompass Protection PDS, 26 September 2025; OnePath OneCare PDS, 1 October 2025).
Your ability to work is not part of the test. A cancer survivor who returns to full-time work still receives the Trauma payout.
Income Protection pays a monthly benefit while you are unable to work due to sickness or injury, after the waiting period (commonly 30, 60, or 90 days) and continuing through the benefit period. The test is ongoing inability to perform the duties of your occupation, not a specific diagnosis. A musculoskeletal injury, mental health condition, or any sickness that prevents work can trigger an IP claim without ever being a listed Trauma event.
IP monthly benefits under contracts written after 1 October 2021 are capped at 70 per cent of pre-disability income under APRA's Individual Disability Income Insurance reforms.
Trauma cover cannot be held inside superannuation for new policies under SIS Reg 4.07D, effective 1 July 2014. ClearView confirms this explicitly: Trauma Cover is not available inside super (ClearChoice PDS, 13 May 2024 with 5 June 2025 update). Encompass confirms the same: Critical Illness Cover is not available inside super (Encompass Protection PDS, 26 September 2025). TAL is explicit: Critical Illness Insurance cannot be structured through superannuation (TAL Accelerated Protection PDS, 12 December 2024, Section 2.3).
Income Protection can be held inside super, subject to Conditions of Release at claim and the trustee's policy.
Many clients hold both covers because each addresses a different financial impact of a serious health event:
A cancer diagnosis could trigger both: the Trauma lump sum at diagnosis, and IP monthly payments during treatment and recovery. The covers do not generally offset each other (the Trauma lump sum is not deducted from IP monthly benefits), but confirm offset clauses against the specific PDS.
General advice only. A licensed adviser can walk you through whether one or both fit your circumstances.
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