Multiple Income Protection Policies

How do two income protection policies work?

Income protection benefits are capped at 75% of your income. This means if you have two income protection policies and claim on both, your total payout from both will still equal 75% of what you earn. So by having more than two policies, you may be paying for benefits you won't receive. This doesn't mean that you shouldn't have more than one though.

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Why have more than one income protection insurance policy?

People choose to have multiple income protection policies to help them manage short and long-term financial loss that might be caused by illness or injury. A common strategy is to:

• Receive cover in the first two years of disability with one policy that pays a reduced benefit (60% of income for example)
• Then combine it with a policy that has a two-year waiting period that pays (75% of the insured person's income for to age 65 for example).

What is the maximum benefit amount that I can receive with income protection?

The benefit amount that you can insure with Australian income protection plans is up to a maximum of 75% of your gross annual income. Your annual income may include:

• Salary
• Commissions
• Bonuses (you may need to provide proof that you have received them three years in a row to be eligible)
• Overtime payments
• Reportable fringe benefits
• Superannuation contributions

Some insurance providers may offer an excess of up to 15% in cover; however, the additional amount must be used as superannuation contributions.

Why am I only covered for up to 75% of my income?

You are only covered for up to 75% of your income because there should be an incentive for you to want to return to full-time employment when you have fully recovered. Income protection should be treated as a form of support while you are temporarily disabled, so you have the financial capability to cover basic necessities and maintain your family's lifestyle.

When will income protection payments be reduced?

In Australia, income protection is designed to cover a percentage of your income. Insurers will generally cover up to 75% of your income to incentivise you to return to work. This usually means your combined amount would be capped at that percentage.

What other income sources can reduce income protection payments?

I have income protection with my superannuation, will I still be covered if I have multiple policies outside of super?

If you have two income protection policies – one within your superannuation fund and another outside super, the limitation on the benefits you receive each month will still apply. However, some super funds may offer an extended waiting period feature, which allows you to receive the benefit payments from your income protection policy inside super, even when you have another cover in place with your other insurance provider.

You may choose to receive your benefits at the end of your super policy waiting period. However, with extended waiting period, you may receive your payments from the policy inside super fund once the benefits from the other insurance provider cease. You must continue to be disabled to receive the benefits.

It is important to note that not all superannuation fund offer this feature. Consult with your respective super fund if you have any doubts with owning multiple policies – inside and outside superannuation environment.

But how will the insurance providers find out that I have multiple income protection policies?

Insurance providers are able to share information about customer's claim histories and so it is important to disclose any relevant information, including whether you have existing policies. If an insurer discovers that you have not disclosed information such as this, your claim payout may be impacted negatively.

Make sure you disclose

When you lodge a claim on your income protection policy, your insurance provider must follow specific guidelines in order to process your claim. Once you notify your insurer that you will be lodging a claim, you will also be required to complete a claims form and submit any relevant documentation required to lodge the claim, such as doctor's report and proof of income.

It is very important to be completely honest with the details that you submit in your claim. All providers will verify all the details provided in your claim and they will thoroughly investigate all the documents to ensure that you are not making a fraudulent claim.

Include any other forms of compensation you have received eg workers compensation

Your insurer will ask whether or not you have made or intend to make a disability claim with any other insurers or organisations, such as Centrelink or worker's compensation. This ensures that the insurer is able to adjust the benefit payment accordingly so that no more than 75% of your regular income is provided.

Remember that failure to disclose information that you have more than one income protection policy may result in your claim being rejected and the insurance provider may choose to void your cover.

What are the benefits of having income protection cover in place?

Income protection insurance provides coverage in the event that you are unable to work and earn an income, as a result of a serious illness or injury. It offers financial support to replace your lost income in a form of monthly benefit payments of up to 75% based on your regular wage.

There are many advantages of having income protection in place; comprehensive policies offer many fringe benefits that you can tailor to your needs, such as (and not limited to):

• Accommodation benefit: A benefit is payable to cover accommodation expenses of a family member to care for you while you are totally disabled.
• Nursing care benefit: When you are totally disabled, confined to a bed and requires care from a registered nurse, you will be eligible for a benefit payment.
• Family support benefit: If you are totally disabled and becomes totally dependent on an immediate family member, a benefit amount will be payable.
• Rehabilitation benefit: A benefit amount is payable when you participate in an approved rehabilitation program.
• Overseas transportation benefit: The insurance provider may provide a benefit payment to cover the transportation costs for you to return to Australia if you have been totally disabled for three months.
• Needlestick benefit: If you are a medical professional, you are eligible for a benefit payment in the event that you have been infected with a blood borne disease such as HIV, Hepatitis B or C.
• Death benefit: The insurer may provide a death benefit payment, usually in a multiple of the insured benefit amount, if you pass away.
• Premium waiver: Your premiums will be waived if you become totally disabled and are receiving benefit payments.

Weigh up the benefits and drawbacks of having multiple income protection policies

You may want to consider the benefit of having one income protection policy in place instead of multiple policies at once. With a single income protection policy, you have the flexibility to tailor your plan as comprehensive as you want it to be, and you only need to keep on top of premium payments on one policy. If you have multiple plans, chances are you may need to pay more in premiums, or sacrifice some great benefits to reduce the premiums, and deal with the inconvenience of managing multiple policies.

However, if you are still considering a multiple policy approach to manage your short-term and long-term needs at a time of disability, consult with an insurance consultant to obtain a tailored advice on whether or not this strategy is suitable to your situation.