14 Benefits of Income Protection

Interested in applying for income protection but not quite sure of the key benefits?

Income protection provides monthly benefit payment of 75% of injured/sick workers income. A standard income protection policy will include:

    • Income replacement. A benefit is paid (usually monthly) of 75% of the workers income for injuries and illness that has been sustained both at work and at home.
    • Excess contributions to super. Some policies will provide cover for more than 75% of the insured’s income though this must be contributed to their superannuation fund.

14 benefits that income protection insurance you may not know about

In addition to income replacement, income protection policies also provides the following benefits:

1. Rehabilitation programs and expense benefits

Rehabilitation costs are the expenses involved in physical therapy, home and workplace modifications and related recovery steps. People who are ineligible for Medicare, or don’t have this through another form of insurance may want to look for it in particular.

Rehabilitation programs, and rehabilitation expenses, typically take the form of two different options.

  • Rehabilitation programs can pay out an extra amount on top of your other income protection benefits, such as an additional 50% for every month you are participating in a rehabilitation program.
  • Rehabilitation expenses can help cover the cost of necessary modifications to your home, your workplace, your car or almost anything else that helps you rejoin the workforce sooner.
  • You might not be able to claim these benefits if the same cover is available to you under medicare or elsewhere.
  • Rehabilitation expenses may need to be approved by the insurer before they are incurred.
  • Rehabilitation benefits are generally only available while you are receiving income protection benefits under your policy.
  • The amount paid out is generally dependent on your typical income. For example, a policy might pay out up to six times your regular monthly benefits to help cover the cost of home modifications, or might increase your monthly benefits by 50% while participating in a rehabilitation program.

2. Travel and accommodation benefit

With this feature, you or your family can get reimbursed for travel, and sometimes accommodation, costs. For example, if you need to travel a long way to see a specialist practitioner you can may be able to get reimbursed for transport costs up, and your family can get reimbursed for accommodation expenses in order to stay near you.

  • Travel and accommodation benefits may take the form of one combined feature, or two separate ones.
  • Benefits will typically be limited, such as a total of $500 all up for the insured’s travel costs, and $250 per day for family accommodation expenses for no more than 30 days.
  • Other conditions may also apply, such as the travel needing to be for approved purposes, needing to be more than a certain distance from home, or the insured needing to be disabled to a certain level.

3. Transport or overseas assistance benefit

Transport benefits can help cover the cost of emergency transport to hospital from within Australia, while overseas assistance benefits can help pay for your return airfare if you’re overseas when it happens.

These are often found as two separate, but similar, policy features.

  • Transport benefits can be more useful in locations and situations where Medicare or your private health insurance will not cover ambulance costs.
  • Overseas assistance benefits will often pay out a maximum of several times your monthly benefits. Typically it will pay for economy airfares back to Australia by the most direct route, up to that amount.

4. Child care benefits

If you have young children, this policy feature can pay a certain amount for each child, while you are unable to work. This benefit is intended to help with the additional childcare costs you might face, such as a live in nanny or other care, when you are unable to do it yourself.

  • Benefits may take the form of reimbursements for expenses, to be claimed at a later date.
  • Age limits may be specified. For example, this feature might only apply for children aged 12 or under.
  • Benefits paid are typically based on your usual benefit amount and the number of children. For example, your policy may pay out an additional 5% of your monthly benefits, per child under the age limit.
  • Benefit periods can be limited, and may be shorter than the length of time you are unable to work.

5. TPD benefit

Additional benefits may be paid on top of the income replacement if the insured person becomes totally and permanently disabled. Note: Benefits may vary depending on whether you have a linked TPD insurance policy, or are able to claim TPD benefits from a different policy.

6. Specified injury or trauma benefits

With this inclusion, you can receive an additional payout on top of your income protection benefits if you experience one of the specific injuries or illnesses listed on your policy. Unlike trauma insurance the benefits are typically paid over time, although you might also have options to get it paid as a lump sum.

  • Specified injuries typically include paralysis, loss of limbs, loss of sight, broken or fractured bones and similar.
  • Benefits are usually paid on top of your income protection benefits.
  • Some policies may only have specified injuries, or specified illnesses, while others might include both.
  • The range of conditions covered by this option can vary between policies.

7. Elective surgery benefits

With this features, benefits may still be payable as a result of disability or illness following transplants, elective surgery or cosmetic procedures carried out at a doctor’s recommendation, such as aesthetic procedures to help restore one’s appearance following burns.

  • A waiting period will typically apply after taking out a new policy, reinstating benefits or increasing the level of cover.
  • To be eligible, policies with this option generally require the individual to be classified as unable to work due to disability following the procedure.
  • It generally will not pay out for purely cosmetic surgery done without the recommendation of a medical practitioner.

8. Death benefits

This option can pay out an additional lump sum in the event of the policyholder dying while income protection benefits are payable. For example, if someone passes away as a result of the injuries that led to their disability, shortly after the event occurred, then additional death benefits through income protection may be payable. However, if the incident was fatal at the time benefits might not be payable.

  • Benefits paid are usually a multiple of the monthly income protection benefits, such as five months worth of income replacement.
  • This type of cover is generally not intended to be a replacement for term life insurance cover.
  • Conditions will often apply to this payout that will not apply to term life insurance.

9. Bed confinement benefit, or nursing care benefits

The bed confinement feature can pay additional benefits in the event of the insured person being confined to bed on the advice of a medical professional. The nursing care benefit is similar, except it typically requires the person to also be under the care of a registered nurse at the same time, also at the advice of a medical professional.

  • Typically, you will need to be confined to bed for a period of several consecutive days before you can start claiming this benefit.
  • The benefits paid are often daily, for each day spent bedridden.

10. Family support benefits

This option can pay additional benefits if a family member takes time off work to care for the policyholder while they are disabled.

  • Additional benefits with this option may require the insured person to be confined to bed on a doctor’s recommendation.
  • Benefits payable may be reduced by other reimbursements or benefits paid elsewhere, such as bed confinement benefits, or nursing care benefits.

11. Cover through Superannuation

Income protection can be provided through superannuation. This can deliver additional benefits, including cost reductions, but can also carry some disadvantages.

  • Premiums can be paid through your super contributions, changing the financial impact of holding cover this way.
  • If your other types of life insurance are also held through your super fund, it can be easier to bundle income protection in a similar way.
  • If you are self-employed, income protection premiums paid through super can still be tax deductible.

12. Your choice of benefit periods and waiting periods

You can significantly reduce the cost of your income protection policy by reducing the benefit periods, or increasing the waiting periods. Or, you can get a higher level of cover at increased cost by increasing your benefit period or decreasing your waiting period. This flexibility is available with many income protection policies and has a significant impact on your cover.

The availability of benefit and waiting period options may depend on your personal working arrangements. For example, part time workers might be limited to benefit periods of only 2 years.

The waiting periods refer to how long you need to have been unable to work before you can start claiming. For example, if you choose a waiting period in the upper range, such as 90 days, you will need to have been unable to work for about 3 months before you can start claiming income protection benefits.

The benefit periods are how long you are able to claim income protection payments for. The low end is often around 2 years, while the upper end is generally around 5 years.

13. Premium freezing or pausing cover

The conditions of income protection insurance mean that it will generally not pay benefits if the insured person is not gainfully employed at the time of an incident. In other words, policies can’t pay out a portion of your income if you aren’t working at the time. The premium freeze and pause benefits mean that in the event of temporary unemployment you may be able to pause your cover and stop paying premiums so that you aren’t paying for nothing. This can be a very useful feature because cancelling a policy and then taking out a new one later will often cost more than simply pausing your cover.

14. Taxation benefits

Income protection premiums may be tax deductible when held outside of superannuation funds, but are generally not when held inside super funds (unless you are self-employed). There can be a range of tax implications with income protection insurance, and it can be worth learning more about these to take full advantage of the cover and cost benefits that are available with income protection insurance.

Why is it necessary if I'm entitled to workers compensation?

While workers compensation insurance provides income protection cover, it only covers you for injuries or illnesses that occur at work.

Some of the events that workers compensation can cover include:

  • Hospital treatment expenses
  • Medical treatment required
  • Ambulance transportation
  • Workplace rehabilitation service
  • Travel expenses to appointments for medical, hospital or rehabilitation appointments

What are the disadvantages of income protection?

While the advantages of having income protection are obvious. There are some drawbacks to people looking to take out cover.

  • You will be assessed based on the level of risk you carry. Each applicant will be required to declare information in the application stages to allow the insurer to determine how much risk they present which will be reflected in their premium payments. This includes characteristics such as;
      • Whether they smoke
      • How old they are
      • Their occupation
      • Pre-existing medical conditions
      • Alcohol consumption
  • Premiums increase as the insured ages. Premium payments will increase as the insured ages as they are considered a greater risk when they are older due to the increased likelihood of developing medical conditions.
  • Most policies will not provide benefit for unemployment. Despite cover being provided for injury or illness, income protection will not provide a benefit payment if the person is to be made redundant.
  • Some providers will not provide cover for people with certain illnesses. Some insurance providers will not provide a person with cover if they deem the person presents too great a risk to them. This can be the case for people suffering certain medical conditions.
  • Taxable if earned income when claiming. While income protection can be tax deductible, it can be subject to tax as earned income when claiming.

While there are some drawbacks of income protection, many can be reduced by taking the time to compare different policy options and through ongoing review of your policy against your changing situation. This will ensure you are not paying too much for your cover and still receiving an adequate level of protection.

Considering taking out income cover?

If you are considering taking out income protection insurance, it is essential to take the time to put in the legwork to assess what policy features you require for your situation. Trimming off expensive policy extras can save you thousands in the long term. An insurance consultant can assist you through the application process by;

      • Helping you determine what features are relevant to your situation.
      • Help you compare hundreds of different policy options at once based on your needs.
      • Help you locate policy discounts. Some policies will offer discounts of up to 5% for taking out joint cover.
      • Help you find affordable cover by finding insurance companies more willing to offer cover for someone of your characteristics.
      • Help you organise and submit the necessary paperwork for your policy application.

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Compare income protection quotes from these direct brands

Rates last updated November 18th, 2017
Name Product Short Description Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period
Cover up to 75% (to a maximum of $25,000) of your monthly income with NobleOak Income Protection. Benefit period can be tailored to suit your needs.
2 years or to the age of 65
30 or 90 days
Protect your lifestyle with Virgin Income Protection. New eligible customers can earn 25,000 Velocity Points. Ends 31 Nov. Min monthly premium and T&Cs apply.
5 years
14, 28, 60, or 90 days
Receive up to 75% of you income (up to $10,000 per month) of your income if you're unable to work due to serious illness or injury.
5 years
30 or 90 days
Cover up to 75% of your monthly income if you can’t work due to illness or injury, up to a maximum of $10,000 a month. Take out cover today and you could get a bonus $100 Gift Card.
5 years
30 or 90 days

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William Eve

Will is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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