Understanding Income Protection
If you can’t go to work due to Illness or Injury, income protection is there to help – replacing lost income/earnings whilst you get back on your feet. Unexpected things happen all of the time, income protection is designed to assist you in continuing to meet your ongoing business and personal expenses if you’re unable to work due to a sickness or injury.
It’s very important to understand the key features, benefits of any income protection product you are considering, including:
- You must be employed in a gainful (paid) occupation and working to apply for Income Protection. The product is insurance. It is not a savings product. No refunds are provided when the policy ends, and it does not accumulate a cash value. Like other insurances, the premium you pay provides protection if the insured event happens.
- Monthly Cover/benefit: The amount of cover that you insure yourself for (which is based on a % of your gross income and may increase over time, due to Indexation). The payment you receive at claim time is based upon your Monthly Cover Amount. The definition of income and Income inclusions (including add-backs) may vary from product to product.
- Waiting Period: is the amount of time you must wait before your benefit payments start. This is the period of time between the Life Insured becoming Totally Unable to Work or Partially Unable to Work, and benefit payment becoming payable. You may be eligible for total disability or partial disability benefits. Common waiting periods include – 30 days, 60 days, 90 days, 180 days.
- Benefit Period: The maximum duration an insurer will pay total and/or partial disability benefits for any one Illness or Injury over the life of the policy. Common maximum benefit payment period options include – 1 year, 2 years, 5 years, to age 65, to age 70.
- Indemnity contracts: This is the default definition that applies to all retail income protection products issued after 1.4.2020. An Indemnity definition means at claim time, your monthly benefit is calculated as the lower of your monthly benefit/cover amount; and a % of you Pre-Disability Income (This may vary from insurer to insurer).
- Definition of pre disability income/earnings: Definitions may vary from product to product, whether you’re an employee of self-employed, at claim time. Examples include: (1) Pre-Disability Income is the average Monthly Income for the 12-month period immediately prior to the Date of Disability. (2) Where the Life Insured was receiving Variable Income, Pre-Disability Income is the greater of their average Monthly Income: • over the consecutive 24 months; and • the most recent financial year, • immediately prior to the date of disability.
- Total Disability and Partial Disability Benefits: If you’re off work due to Injury or Illness, you may be entitled to a Total Disability Benefit paying up to 100% of your monthly cover amount. If you can still work but in a reduced capacity (and are earning less income), you may be entitled to receive a Partial Disability Benefit. Unable to work means that solely because of sickness or injury, the life insured is not working in any capacity (this includes fulltime, part-time and casual, whether or not for remuneration), and following the advice and treatment plan of a medical practitioner in relation to the sickness or injury. Total and partial claim definitions may vary from product to product.
- Other common product features:
- protection offered 24 hours a day, 7 days a week, 365 days of the year, world-wide coverage.
- Recurrent Disability Benefit: the waiting Period is waived if you suffer a Recurrent Disability within 12 months after the insurer has ceased paying Total Disability or Partial Disability Benefits.
- Premium Waiver: you won’t need to pay premiums for your Income Cover while you’re receiving Total Disability or Partial Disability Benefits.
