How to claim income protection
Follow these tips to claim a benefit when you’re unable to work due to illness or injury.
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Around half of Australian workers under 35 would not be able to survive one month without an income before needing to begin selling their assets, according to research by Zurich. Despite this, only 31% of Australians have income protection insurance, compared with 83% who have car insurance.
With accidents being the main cause of claims and 40 to 59 year olds making up the majority of claimants, it would seem income protection is a vital cover that many of us are failing to acquire. This is your no-nonsense guide to income protection and how to make a claim.
The following steps are typically involved in making a claim on your income protection policy:
- Notify your employer and insurer as soon as you experience an illness or injury that makes you unable to work.
- The insurer will then send you paperwork for completion including a salary continuance report with a statement from your GP, a tax file number declaration form, a claim form, an income replacement employer report, your leave and pay history for the previous 12 months and certified proof of age (ie, driver’s licence, birth certificate or passport).
- You then send the completed documentation to your insurer who will assess your claim once the waiting period expires (after 30, 60, 90, 120 or 180 days depending on your policy).
Income protection pays an ongoing benefit for up to two years (or until you turn 65) if you are temporarily unable to work due to illness or injury. It can be purchased separately from an insurance provider or held inside superannuation.
There are two types of income protection benefits:
- Total disability benefit. This is payable if you are not able to work and are deemed to be totally disabled. This means that because of illness or injury, you are not able to perform one or more important duties of your own occupation (duties that involve 20% or more of your job). You are under the regular care and advice of your GP and are not working in any capacity.
- Partial disability benefit. This is payable if you are partially disabled for at least 10 out of 14 consecutive days after the waiting period. Partially disabled means that because of your illness or injury, you are not able to perform one or more important duties of your own occupation. You are under the regular care and advice of your GP, but you are capable of working even though you are earning a monthly income less than your previous salary.
Typically, income protection insurance provides you with a monthly income stream of up to 75% of your original salary. The amount you receive will depend on whether you are deemed totally or partially disabled (partial disablement may only pay a portion of your monthly income) and whether your policy is an indemnity or agreed value policy.
Indemnity value insures you for the income you are earning at the time you make a claim, while agreed value insures you for the income you are earning when you first take out the policy.
This makes indemnity value ideal for those in steady work, as their salary is likely to rise over the years, while agreed value is usually better suited to self-employed workers, whose income can fluctuate from month to month.
You have a duty of disclosure to be truthful to your insurer both when applying for cover and when lodging an income protection claim. If you don’t answer all questions truthfully and include any information that may affect the insurer’s decision to insure you or their decision to pay a claim, then your policy can be legally cancelled by your insurer.
Typical questions your insurer will ask you include:
- Has your GP confirmed that you are likely to be off work for longer than the waiting period?
- Have you experienced this or a related condition in the past?
- What are the duties you perform in your occupation and the approximate time spent performing each?
- Is it your intention to return to work with the same employer after you recover?
How long do you have to lodge an income protection claim?
- Time limits do apply to lodging income protection claims (usually six months from the time you become ill or injured), so you should lodge a claim as soon as possible after the illness or injury occurs and you are unable to return to work.
How long does a claim take?
- Your insurer will not begin assessing your claim until your waiting period has been served (between 30 and 180 days). After this, your claim may take several weeks or months to assess, depending on whether further information is required or if the insurer requests further medical testing.
Are the benefits tax assessable?
Income protection payments are taxed as if they were normal income. When you lodge your claim, you will be asked to provide your tax file number so your income protection payments can be taxed on a pay as you go (PAYG) basis.
If you don’t provide your tax file number, your insurer will be required by law to withhold tax from your benefit payments at the highest marginal tax rate, rather than at the lower personal tax rate.
While your income protection benefits are taxable, your premium payments are tax deductible, but only when your policy is held outside of superannuation.
Can you still receive WorkCover payments or Centrelink benefits?
If you are receiving WorkCover or Centrelink benefits in relation to your illness or injury, you can still continue to get them while receiving income protection payments. But the monthly benefit you receive from your income protection claim will be reduced accordingly.
What happens if the claim is accepted?
If, after assessment, your insurer accepts your claim, you will be paid a monthly benefit into your nominated bank account. The payment will be one month in arrears from the time your waiting period ends (ie, after 60 days if your waiting period is 30 days).
Your claim will then be reviewed monthly to determine your ongoing eligibility. This will include providing a doctor’s report every month and possibly undertaking periodic independent medical examinations if requested by your insurer.
What if you’re not satisfied with the outcome of your claim?
If your insurer denies your claim for income protection, you have some options available to you if you are not satisfied with the decision. You can request a review of your case by a third party through your insurer’s internal dispute resolution process.
If still not satisfied with the outcome, you can contact the Australian Financial Complaints Authority (AFCA) or, if your income protection is held inside your superannuation, you can contact the Superannuation Complaints Tribunal (SCT).
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