What exactly is an income protection waiting period?
An income protection insurance waiting period is the time you must wait from when you become unable to work due to illness or injury to the time you become eligible to start receiving income protection benefit payments. Depending on the policy, waiting periods can range from 14 days up to 720 days.
How long should I make my waiting period?
When deciding on a waiting period, you access whether or not you'd prefer to pay more out-of-pocket in the long term or the short term. For instance:
|Waiting period||Cost of premiums||When an injury/illness occurs|
Do waiting periods apply for disability claims?
The start date of the waiting period for temporary disability due to illness claims is usually the day you have been diagnosed with the illness, and the start date of the waiting period for temporary disability due to injury claims is normally the day the accident happened.
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How long can my waiting period be?
Insurers offer a variety of options when it comes to waiting periods. The rule of thumb is the shorter the waiting period you choose the higher your premium will be. This is to offset the risk of an increased rate of claims for policies with shorter waiting periods.
You can usually choose a waiting period of:
- 14 days
- 30 days
- 60 days
- 90 days
- 180 days
- 360 days
- 720 days
Choosing a waiting period should not just be about saving money by selecting a longer waiting period (and thus paying lower premiums). The waiting period you choose should be based on how long you believe you can realistically be without an income before you start receiving a benefit.
Example of a waiting period in action
- Date that income protection claim is lodged and medical practitioner certifies that you are unable to work: 10 June 2015
- Waiting period applied: 60 days
- Waiting period expires: 8 August 2015
- First payment made on 7 September 2015 for first month of benefit period (9 June 2015 to 8 July 2015)
What you need to know about waiting periods
As well as charging more for a shorter wait, some insurers attach additional conditions to their waiting periods. For instance, you may be required to be totally disabled and unable to work for at least 7 or 14 consecutive days of the waiting period in order to qualify for the benefit.
You should read your product disclosure statement (PDS) carefully for this reason, and seek professional advice if necessary before purchasing your income protection policy.
How long should my waiting period be?
The length of your waiting period is a very important consideration when purchasing income protection insurance. Everyone’s circumstances are different. In the event that you are suddenly left without an income, you need to ask yourself the question: “Will I have enough money to be financially secure until my benefit payments begin?”
Some people have mortgages and car payments, and we all have day-to day living expenses. So, unless we have investments or savings in the bank to draw on, we could find ourselves without money to even put food on the table if our source of income were to dry up suddenly.
Therefore, when choosing a waiting period with your income protection policy, you need to factor in your weekly budget, any financial obligations you have and how much sick leave and annual leave you are likely to have accrued through your employment. You can then feel secure in the knowledge that you are in a position to choose a waiting period that you can afford and that will allow you to comfortably bridge the gap between the time of your illness or injury and the day you actually receive your first benefit payment.
Risks of a longer waiting period
- If you change job roles and are not able to transfer your accrued annual leave, you may find you do not have sufficient leave to fall back on during the longer waiting period
- You may find that leave and savings are insufficient with the arrival of new financial obligations such as an increased mortgage or the birth of a second or third child
Weekend footy gone wrong
After putting it off for years despite the insistence of his partner, Karen, landscape architect Ken finally took out income protection insurance following the birth of their first son, James. After speaking with his insurance consultant, Ken decided that a waiting period of 30 days should be adequate given the sick leave and annual leave he would be entitled to and the savings he could fall back on.
Two years later, while playing football, Ken suffered a major double fracture to his ankle requiring immediate surgery and rendering him unable to work. Ken submitted his claim for income protection and was luckily able to draw on sick leave and annual leave payments during the 30-day waiting period. Ken was under claim for a total of three months while his ankle healed before he was finally able to return to work.
Can I get Income Protection with no waiting period?
Many Income Protection policies offer a specified injury benefit which provides an advance payment separate to the ongoing benefit payment for certain conditions. This advanced benefit will usually begin from the date of the injury, regardless of the choice of waiting period.
Injuries that may be covered under the specified injury benefit include:
- Loss of one arm or leg
- Loss of sight in one eye
- Fracture of thigh
- Loss of sight
- Loss of both feet or both hands
Some final questions you might have
Q. How long can my waiting period be?
A. You can generally pick a waiting period between 14 days and 2 years.
Q. Can I adjust my waiting period at a later stage of my policy?
A. This will depend on the policy you choose. Most insurers will let you make adjustments to your policy at later stages, such as adjusting the payment structure or increasing or reducing the level of cover.
Q. Why does it cost more to have a shorter waiting period?
The shorter the waiting period, the easier it may be for you to successfully make a claim. A less severe injury or illness may only keep you off work for a shorter period of time during which you can successfully lodge a claim.
Q. How can I save on my policy?
You can pay a reduced premium by selecting a longer waiting period. You should consider if you are able to fall back on other benefits such as sick or annual leave or savings you have accumulated.
Q. Will I have to undergo another waiting period if I am eligible to claim again for the same injury or illness after returning to work?
A. Generally no. Most insurers will allow you to resume receiving payouts (provided you meet the insurer’s eligibility requirements) without having to undergo another waiting period. This will only apply if you resume your claim within a specified period of time, typically six months.
Q. How do I know what my waiting period is?
A. Your waiting period should be shown on your policy schedule.
Q. Do any policies offer an income protection waiting period exemption?
A. As discussed above, all policies require a waiting period to be selected at time of application. The waiting period generally does not apply for the specified injury benefit to be paid.