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5 things to know about claims under Income Protection Insurance cover

Published on November 27, 2023 by David Coorey

Safeguarding your financial security when you are unwell and unable to work can be crucial.

While many people focus on protecting health and property with insurance cover, another key insurance cover that often gets overlooked is the ability to access income protection (IP) benefits, when you are unable to work.

This article aims to explain how insurers assess these claims and your right to make a claim against income protection insurance.

1. You may have income protection cover – without even knowing it!

It is worth checking your Super (and your employer) to see if you have IP cover

You may have income protection cover without ever having formally applied for cover

This is offered as a default product to some Super members as a form of automatic IP cover.

Whilst it is more common to see Total and Permanent Disability offered through Super, some Trustees sometimes offer automatic IP cover.

Employers can sometimes offer a form of Income protection cover called Salary continuance.

You may want to check your Super statement and your Employer to see if you have cover.

2. Income protection cover is a type of Disability insurance

Income protection cover is a type of insurance designed to provide a replacement income stream for you – if you are unable to work due to illness, injury or disability.

Unlike health insurance, which covers medical expenses, income protection insurance ensures that you continue to receive a portion of your income to cover living expenses, bills, and other financial commitments.

Importantly you might hold default income protection insurance through your superannuation fund or employer, or union, so it is always worthwhile checking.

You may also be eligible to claim for Total and Permanent Disability cover if your Super fund offers this additional cover and you are permanently unable to work.

3. Indemnity value cover v’s Agreed value cover – check your Policy

Indemnity value cover

This type of cover is based on a percentage of your salary, usually 70% to 75% of your pre-disability income, and sometimes with an additional super component.

Any benefit payable is usually offset against income received from alternative sources such as workers compensation/motor vehicle weekly income benefits or Centrelink.

Agreed value cover

Agreed value cover is based on percentage of an agreed amount usually based on 12 to 24 months prior earnings.

From 31 March 2020, insurers can no longer offer agreed value policies to new customers. If you purchased an agreed value policy before this date, you can continue to hold this policy. If you decide to change policies, you will only be able to purchase an indemnity value policy.

4. Your IP claim will be assessed against your Disability cover (after waiting period)

A person who has a disability, which stops them from earning an income, may be able to apply to claim for income protection payments

You must be unable to work as a result of your illness or injury at the end of the waiting period, often between 30 to 90 days, to be eligible to claim for benefits. It is important to check the specific waiting periods relevant to your policy with your provider.

Your insurer may assess your claim for Disability, usually based a definition such as:

• your duties, your hours worked or your (loss of) income earnt

Check your cover to establish whether you qualify as Partially Disabled or Totally Disabled under the Policy terms. You should seek legal advice if you have any concerns about the Insurer’s assessment under Policy terms.

5. Key terms to understand in your income protection insurance cover

1. Waiting period – the period of time you need to be unable to work before you can start receiving benefits. The waiting period is usually between 30 days to 90 days.
2. Benefit amount – the percentage of your pre-disability income that you will receive as benefits during the coverage period. Typically, it ranges from 70% to 75% of your pre-disability income (usually) plus Super contribution.
3. Benefit period – the duration for which you will receive benefits after the waiting period ends. It can range from a few months to several years, depending on your policy. Most policies are between 2 years to 5 years and sometimes to retirement age e.g., 65 years.
4. Offset clause – this is a key clause that allows the insurer to reduce the benefit payable to you, on the basis of other sources of income such as Workers Compensation or Motor vehicle accident weekly benefits
5. Exclusion – certain conditions or situations that are not covered by your policy, such as intentional acts (self-harm). It’s important to understand these exclusions and get advice when necessary.
6. Occupation definition – identifies the level of disability required to qualify for benefits based on your occupation. IP is usually offered as “any occupation” (cover unable to perform any job). “Own occupation” cover is sometimes available to professionals (unable to perform a job you are qualified for).

Speak to an Income Protection claims expert if you have concerns

Whilst many people can submit a claim for Income protection without requiring legal assistance, there can be times where you know you need help.

We have the experience and expertise to assist you in difficult times.

Please contact David Coorey on 02 8661 0209 or superclaims@codea.com.au for assistance on TPD claims.