What is salary continuance insurance?
Salary continuance insurance provides you with a percentage of your regular income when you become sick or injured and are forced to take time off from work. Some of the key characteristics of salary continuance insurance include:
- It provides up to 85% of regular income. Salary continuance insurance normally pays a monthly benefit of up to 85% of your regular salary every month while you recover. This is usually up to a maximum of $20,000 a month.
- Cover funded through super. Salary continuance insurance is specifically held inside a super fund.
- Part of your benefit goes to super. For instance if your benefit pays out 85% of your income then 75% will go into your pocket and 10% will go to towards your super.
- Maximum benefit period is usually two years. Although some policies will state benefit periods up to a certain age.
Why isn't 100% of my income covered?
This type of insurance will not insure 100% of your income, to leave an incentive for you to return to work once you are able to.
Whether a certain type of policy is the best for you depends on your individual insurance needs. As such it is always advisable to assess your own requirements and use that to guide your decision. To make it easier for you to see if salary continuance cover is worth considering you can find a brief run down of the main benefits and drawbacks below:
- Lower coverage prices. Buying income protection through super attracts lower premiums and group discounts are available.
- Eases the strain on your finances. Premiums are taken out of your super rather than your bank account.
- Tax reductions. The tax savings can be used to add additional cover if you need it.
- Can be claimed as a tax deduction. If you are self-employed you can claim a tax deduction on your super contributions
- Automatic acceptance for basic cover. Less hassle with a streamlined application process.
- Less control over your cover. For example, payment failures on the part of your employer could result in you becoming uninsured without you even realising it.
- Claim processing takes longer. This means a delay in you receiving your benefit.
- Eats into your retirement fund. Due to the premiums being taken out of your super.
- Basic cover level. You may only be entitled to a two year benefit period, and incur longer waiting periods for higher levels of cover.
- Restricted tax deduction eligibility. The usefulness of the tax deductions only apply if you are self-employed.
Benefits of salary continuance insurance for employers
- Extend their statutory sick pay requirements for staff members at a very low cost. Using salary continuance policies to cover staff can cost as little as one percent of the total company payroll.
- Stay competitive in the job market by offering it as an added benefit included in salary packages.
More than one superannuation policy
Q. If you have more than one superannuation policy containing salary continuance, are you eligible for more than one payout?
This will largely depend on the specific terms of the your super policy. As a general rule of thumb, you can claim on more than one policy, however some insurers may reduce your benefit amount by the benefit of the second insurance policy.
Salary continuance insurance allows you to nominate how long benefit payments will continue if your inability to work is prolonged. The maximum period that a benefit can be paid under salary continuance insurance is 2 years.
To decide on your benefit period
Ask yourself the following questions:
- How long will my monthly benefit need to continue for? Think about how long you will need in order to make suitable arrangements for your family's ongoing financial comfort and how long you expect you will require your cover.
- How little can I live on if I couldn't go to work because of my disability? Don't forget to factor in such things as expenses such as your rent, mortgage, utilities, food, transport and your medical costs.
- Do I have savings set aside? If you have savings set aside, you might consider shortening the benefit period to get a lower premium.
If you can get the answers to these three questions right, you could save yourself a lot in ongoing premium costs, while still having the peace of mind of knowing you will receive adequate salary support when you need it most.
Benefit payments under a salary continuance policy will cease if any of the following events take place:
- You die (some insurers provide a death benefit to your dependents, although this feature will vary between insurers).
- You retire from the workforce or reach the age of 60.
- You become eligible to receive a total and permanent disablement benefit.
- The benefit period (up to two years) has expired.
- You return to work.
If you are receiving any other assistance such as workers compensation, or any other income protection payments, your salary continuance benefit will be reduced by that amount.
The waiting period is the length of time it will take for you to receive your benefit once the insurer agrees to pay out your claim. This is typically 30, 60 or 90 days with shorter time frames incurring higher premiums.
To decide on your waiting period
Ask yourself the following questions:
- When would I need benefit payments to start? If you think you will need immediate cover, then a shorter waiting period may make more sense.
- Do I have savings set aside? Just like benefit periods, if you have sufficient savings it can allow you to choose longer waiting periods and pay a lower premium.
Lodging salary continuance claims can be a more complicated process when compared to other insurance types, as you have the added responsibility of satisfying your super fund's trustee of your inability to work due to injury or illness. Retail income protection insurance that is taken outside of super only require you to satisfy the provider that you took out the policy with.
You may need to report to both the insurer and the fund trustee
Some of the things you may be requested to provide are:
- Detailed monthly reports on your medical condition.
- Signed doctor's statements to support your claim of being unable to work in your regular occupation.
When will benefit payments cease?
If your claim is found to be valid the following will occur:
- You will have to wait for the period of time you nominated when you took out your policy.
- Once the waiting period has expired, the benefit will be released to you, and you will continue to receive payments for the length of your nominated benefit period.
One advantage of having an income protection policy within superannuation is the significant impact the benefits can have on your super contributions while you are receiving them.
Like most income protection insurance, there are several conditions under which a benefit will not be paid, such as:
- If your disability is caused by an illness or injury not included on your policy.
- If your injury was self-inflicted.
It's important to read your policy carefully so you know exactly what you are covered for. If you find that your policy is lacking in one area or another you can always take out a higher level of cover, albeit with an increase in your premiums.
If you are covered by salary continuance insurance as part of your employee benefits you should speak to the relevant department at your work if you are unsure about your cover.
To be eligible for salary continuance insurance you will typically have to:
- Be an Australian citizen or permanent resident residing in Australia.
- Be working more than 20 hours a week on a full-time permanent basis.
Additionally, the following factors, while not excluding you from cover, can result in you attracting higher premiums:
- If your occupation is deemed to be high risk.
- If you have a pre-existing medical condition.
- If your health and lifestyle is considered high risk. If you smoke for example.
It is vital that you accurately disclose your medical history to avoid complications on your future claim. Some insurance providers may accommodate your application with certain limitations on your insurance coverage based on your circumstances.
Can company directors take out salary continuance insurance?
- By taking out the cover on a personal basis. If you decide to pay the premiums personally you will receive the benefits directly.
- By having the company provide the cover. In this case the company will receive the benefits as compensation after they have paid your salary, whether its at a reduced rate or in full.
Under an executive salary insurance policy it is possible to receive up to 80 percent of your gross earnings, as shareholding directors earnings are based on gross salary as well as dividends.
As with the regular salary insurance policy an executive cover policy normally pays benefits for five years but this can be extended to age 70. It is best however to have it expire at the normal retirement age. It is also possible to make numerous claims on the one policy over the term of your working life for various different reasons.