Income protection insurance and safeguarding your income

Income Protection insurance covers you when you are unable to work due to illness or injury. It usually pays monthly benefits for most of your lost income while you cannot work. This can be particularly valuable when someone is not covered by workers’ compensation or the road accident insurance commission in their state, such as the TAC in Victoria. 

Many Australians hold default income protection insurance through their superannuation funds. You can also apply for income protection insurance through your super fund or by applying directly with an insurer. You may also be covered under a policy owned by your employer or union.

Key terms to understand in your income protection policy

Whether you have income protection through your super, an insurer or your employer, it’s important to be across the details of your cover. Important things to look at are:

Waiting periods
Waiting periods are the amount of time you need to be unable to work before you can receive your benefits (payments). Generally, waiting periods can be 14 days, 30 days, 60 days, or 90 days. With some policies, you may be able to customise your waiting period.

Benefit periods
Benefit periods refer to the amount of time you will continue to receive payments while you’re unable to work. The benefit periods we see most often are two or five years or up until a certain age, usually 60 or 65.

Benefit amount
The benefit amount is the amount of money you will receive while you’re unable to work. This will usually be calculated at 75% or 85% of your “pre-disability income”, meaning the insurer will pay you this percentage of what you earned before you were injured, up to a maximum amount. For example, someone may be insured for $2,500 per month, or up to 75% of their “pre-disability income”, whichever is less.

Different types of income protection insurance policies

• Income protection through your super
  When insurance is held through a superannuation fund, the superannuation fund is generally the policy owner of a “group” policy covering insured members. Members pay insurance premiums from their accounts. Insurance cover through super is generally more affordable because it is structured as a group policy payable by members. Members can usually apply to increase or vary their cover within super.
  
  
• Retail insurance policies
  Insurance held outside of super, where the insured owns the policy, is called a “retail” policy. This type of cover can often be more customised to suit individual needs.  It is often a more expensive option than group policies within superannuation.
  
  
• Government superannuation schemes
  Some state and federal government superannuation schemes are “self-insured” or provide monthly pension benefits to members who cannot work due to illness or injury. These schemes are usually covered under unique laws or fund trust deeds setting out the terms and conditions for pension payments.

The importance of having the right income protection insurance for you

Policies vary widely on the income protection cover provided, and it is important to know what you are covered for and to ensure your cover is right for you.

For example, if you’re earning an income of $6,000 per month and your default income protection insurance through your super fund would pay you a maximum of $2,000 per month if you’re unable to work, you may want to consider if the income protection benefits would cover your financial needs if you’re unable to work.

Claims and policies may respond differently, depending on whether someone is employed permanently, casually, or self-employed. There may also be eligibility conditions to claim, such as working a certain number of hours before ceasing work.

Once you are unable to work, it is too late to change your cover. This is because your insurance entitlements will depend on the cover you had at the relevant “date of disability” under the policy, which is often the date you cease work.

Benefit reductions in income protection policies

Most policies contain “offsetting clauses” meaning the insurer will reduce your benefits by other income received during the benefit period, such as workers’ compensation or another income protection insurance policy. Some policies state they will reduce your benefits if you receive Centrelink payments, though, in our view, this can be inappropriate and can sometimes be challenged. Income protection payments may also affect or reduce any compensation for loss of earnings or earning capacity you may receive.

Most policies also contain “partial disability” benefits if you are able to return to work but in a reduced capacity and earning less income. Usually, the “partial disability” benefits will top up your income up to the benefit amount.

Things to look out for

The information above is general. It is essential to note that each policy is different. It is also important to note that people's financial needs and circumstances vary widely, meaning the cover that is right for you might not be suitable for someone else.

For these reasons, it is important to know your entitlements and to consider if they're appropriate for you in the unfortunate event you are unable to work due to injury or illness. You may also be insured through your employer or union and should inform yourself of those entitlements. You may wish to speak to a financial advisor or counsellor for more specific advice for your needs.

Remember, once you are unable to work – it is too late to change your cover.

If you are unable to work, you may be able to claim income protection insurance during this time. It is best to lodge a claim as soon as possible, and important time limits apply. Given the wide variation in cover and policy terms, time limits vary.

Most policies require an insured person to show that each month they are unable to work and that they are under the regular care and following the advice of a medical practitioner. Insurers can sometimes take issue with the regularity of the medical treatment, whether the medical advice has been followed and whether or not the treatment has been provided by an appropriately qualified 'medical practitioner' as defined in the insurance policy.

How Maurice Blackburn can help with your income protection insurance claim

Running your own claim can be complicated and can work against you in certain circumstances, so having our experienced advocacy early can be vital.

Our team has a wealth of knowledge and experience interpreting policies, challenging decisions, gathering evidence supporting claims and benefit calculations, and helping people understand and fight for their entitlements.

Our experienced team are here to help you with your claim every step of the way. We can check your insurance entitlements for free and offer obligation-free first consultations, so speak with our team today.

_{Disclaimer: The information we’ve provided above is general information only – It is essential to note that every policy is different. You may wish to speak to a financial advisor or counsellor for more specific advice for your income protection needs.}