Choosing the right income protection policy cover can save you in the long run. Read up on how to choose the right one for you and what to do if an insurer denies your income protection claim.
Most superannuation and insurance providers have policies to protect you if you’re unable to work due to illness, injury or a disability.
Total and permanent disability (TPD) or life insurance compensation will provide financial protection for you, your business or your family if you have a major incident, accident or death; however, partial disability or illness which prevents you from working may not protect your income in the short to medium term.
Income Protection Insurance can provide this protection, and is especially important if you are self-employed, a small business owner, have dependents, or are servicing a debt. However, securing the policy doesn’t always guarantee you will be successful in lodging a claim. Here we describe what income protection is, how to go about arranging a policy, and what to do if you need to make a claim.
What does an Income Protection Policy cover?
Income protection is an insurance policy for your salary. It pays a monthly benefit to replace your income if you are unable to work due to injury or illness. Payments are usually made for up to 75-85% of your normal pre-tax income, and benefits vary depending on the policy (typically, paid for between 2 and 5 years, up to the age of sixty-five, and sometimes, for life).
What are the options for purchasing income protection?
Income protection policies can be bundled with other insurance premiums within your superannuation (such as TPD, trauma cover, critical care, and/or life insurance compensation).
The main benefit of having the policy inside of superannuation is that the premiums are usually cheaper and you can increase your level of cover. You should check your superannuation fund to see if you already have this cover, or if it can be added to your existing premiums.
Premiums can also be purchased outside of superannuation through a financial advisor, insurance broker or direct with an insurer, and offer the benefit of being tax deductible. You can find out more about the tax implications of income protection outside of superannuation via The Australian Tax Office.
Options to consider when purchasing income protection
It is best to speak to your financial advisor when deciding which premium option is best suited to your personal circumstances, but there are some typical considerations for finding the right policy:
- the type and structure of the policy
- Stepped policies are cheaper in the beginning, but increase each year according to your age (so the policy can become very expensive as you get older).
- Level policies start off more expensive but don’t increase with your age, so in the longer term, may be the more affordable option.
- the cost of the premium
- waiting periods until you can make a claim
- maximum cover, and
- the benefit period.
Personal disclosure and underwriting
You will need to disclose personal information like your age, medical history, lifestyle choices, profession and salary when taking out a new policy.
Some disclosures, such as pre-existing medical conditions (for example, previous mental health issues or smoking/prior illicit drug use); or lifestyle choices such as skydiving, may impact the insurer’s decision to insure you (or a specific part of your body), the cost of your premium, and the terms and conditions of the policy. It is important to be honest when filling out the application.
It is also important to read the product disclosure statement of your income protection policy. It will define how the claims process works and what is meant by terms such as insured events, claim limits, exclusions, discounts and benefits.
Making an income protection insurance claim
Unfortunately, some insurers may decline your claim or stop paying after a short time. As a policy-holder, you may not be aware of your legal rights, nor when to challenge the decision of insurers.
It is therefore best to obtain independent legal advice prior to lodging a claim so you are aware of all of your potential disability benefits, and to ensure you maximise your claim for entitlements. Time limits may apply, so you should act promptly when lodging your claim.
If your claim has been rejected, we can also appeal the decision. If necessary, fresh medical evidence can be submitted to support your claim. If it is denied a second time, there is still a chance that we can successfully appeal your claim through the Courts.
If you need assistance on making or appealing a claim, contact our law partners in Sydney at Masselos & Co Lawyers today on 1800 645 099 for a free initial consultation.