Why Should I Consider Salary Continuance Insurance?
Salary continuance insurance is a type of life insurance product that offers you some protection against loss of income in the event of being unable to work due to accident, injuries or sickness. It is very similar to income protection insurance, but it is not the same.
The main difference is that salary continuance insurance is only available through superannuation funds, while income protection insurance policies can be purchased outside of super. Typically, salary continuance insurance will deliver a more limited range of benefits, and have less flexibility for customisation than income protection insurance.
What is a salary continuance insurance plan?
Salary continuance insurance provides you with ongoing income when disability, whether permanent or temporary, means you're unable to work for a certain amount of time. To claim benefits, the disability must generally be caused illness, injury or an accident.
This benefit is designed to replace your regular pay and make sure you're able to keep up with household expenses and can focus on recovery instead of worrying about managing the bills.
How much does salary continuance insurance pay?
The core component of salary continuance insurance is monthly benefit payments, usually equal to 75% of your typical monthly income although occasionally plans will let you claim up to 100% of your usual earnings. Depending on the policy, the maximum amount payable might be capped out at a set amount, such as $10,000 per month. This maximum may be dependent on your age and usual income.
Higher payouts will always incur higher premiums, and benefits above 75% of your usual income may raise the price more sharply.
Even if you are unable to work due to injury or illness, you cannot receive the amount of your insurance benefit immediately. There is a waiting period between the time you sustained your injuries or illness and the time you can start receiving your benefit. Your options usually include 30, 60 or 90 days of waiting period, with shorter waiting periods incurring higher premiums.
Can I claim on more than one salary continuance policy?
While you can claim on more than one salary continuance policy, the total payout will usually be a combined aggregate. For instance if the maximum payout on one of your policies is 80%, the total amount you will receive form both policies will add up to 80% of your total income.
How long will I continue to receive a salary continuance insurance benefit?
The total, maximum amount of time the policy can pay out for is known as the benefit period. This is typically for 2 years after the end of the waiting period, but may vary depending on the policy. The benefit period is the maximum amount of time you can get benefit payments, even if you're still disabled and unable to work after that.
Payments will usually stop before the end of the benefit period if:
- You return to work
- You are medically confirmed to be well enough to return to work but don't
- You stop following a doctor's advice or seeking treatment
- You reach the retirement age specified in your policy. This is usually 65 but you are often able to extend it, although your cover available may also decrease.
Not all injuries or illnesses will entitle you to the full benefit period. Some payout conditions will have a shorter benefit period, such as 6 months or 1 year.
What conditions need to be met for a policy to pay out?
Salary continuance insurance will pay benefits if you are still unable to work or suffering certain kinds of injury at the end of the waiting period. The exact range of circumstances covered will depend on the policy, as will the conditions around them.
- You cannot claim more than the maximum monthly benefits (such as 75% of your usual earnings) regardless of how many payout conditions you meet.
- You cannot claim benefits for more than the total maximum specified benefit period, regardless of how many payout conditions you meet.
The examples below are a general example of how a typical policy can cover different situations.
- Full, permanent disability: In the event of total permanent disablement policies will typically pay out 100% of the total monthly benefits for the full benefit period. Total and permanent disability means unable to work any job with no signs of recovery.
- Partial disability: This means you are still able to do some work, but are not able to earn as much as you used to because of the disability. Here you may be paid only some of the monthly benefit amount, and the exact amount might depend on the situation and how much less you're earning now. You are generally able to keep claiming partial disability for the full benefit period, or until you no longer qualify as partially disabled.
- Death: If you die while claiming salary continuation benefits, a policy might pay out a several months of benefits in a lump sum to your estate, through your superannuation fund.
- Recurring disability: If you suffer a recurrence of the same disability which entitled you to a previous claim, then it will count as the same injury and the waiting periods will be waived.
- Specific injuries: If you suffer any one of the specific injuries laid out in your policy, and are still suffering from this injury after the end of the waiting period, you may be paid monthly benefits depending on what kind of injury it is. For example, a salary continuance policy might pay the full monthly benefits for 3 months in the event of a fractured pelvis, or 24 months for total blindness, or 60 months for the total loss of multiple limbs.
Your superannuation insurance provider will be able to provide a document listing the full payout conditions and benefits to which you are entitled, as well as the situations where you cannot (the exclusions). For example, self inflicted injuries are an exclusion, and you will almost certainly not be able to claim monthly benefits if you're unable to work as a result of self-inflicted injuries. Another common condition is that you must have been employed at the time the disabling injury or illness occurred.
What about part time or seasonal workers?
Where disability cannot be easily defined in relation to your ability to work, policies may also use an "activities of daily living" disability test. Not all policies will do this. Some may use only this definition in some situations, and others might include it as a payout condition alongside others. With this, policies will generally payout if you are unable to do at least two of the following without another person's assistance:
- Bathing or showering
- Dressing yourself
- Going to the toilet
- Getting out of bed or getting out of a chair
Who will pay for my salary continuance insurance?
A lot of companies will apply for a group salary continuance insurance policy as part of a benefit they give to employees, and some superannuation funds will also include certain policies by default or as optional extras. Different parties may be paying premiums depending on the situation.
- Your employer might pay the full amount
- Your employer might pay a partial amount
- Premiums may be getting deducted from your superannuation contributions
- Premiums may be deducted from your salary or wages
Unless premiums are paid entirely by your employer you can reasonably assume that you are paying the premiums for this policy in some form, if you have one. If you take out a standalone income protection insurance policy, while your employer or super fund is offering a salary continuance policy, it's possible that you are covered by more than one policy and might be paying too much overall, for too little extra benefit.
What if I'm covered by more than one policy?
Policies will specify different conditions in the event of you being able to claim for something against more than one insurance policy. This can get complicated, and depending on the situation:
- You may only be able to claim from one or the other.
- You may be able to claim specific benefits from one, such as a lump sum, and different benefits from the other such as monthly benefits.
- Your benefits payable for one may be reduced based on benefits payable by the others.
This is because not all policies are the same. Some salary continuance policies may pay out the full benefits irrespective of wherever else you are claiming benefits, while others may reduce benefits by the amount you are claiming from other sources, such as workers compensation or a second salary continuation policy.
For example, you might be able to claim lump sum benefits for disability from one policy and monthly benefits from the other policy, while you would have had to choose one or the other if you only had one policy.
Sometimes it won't make a difference either way, and other times it make a significant difference depending on which order you make the claims in and which specific "payout condition" you claim against. To get an ideal outcome it can be a good idea to consult an independent insurance advisor, or examine the payout conditions and limitations of your policies very carefully.
Tom's double insurance
Tom had two salary continuance insurance policies when he was suffered a workplace accident, and two severely broken arms. It was unclear whether he would ever have function restored. When talking it over with a lawyer, he was advised on how to organise the different compensation sources for a higher payout. They looked at the policies thoroughly, and eventually decided to:
- Claim monthly benefits from one salary continuance policy. One salary continuance policy paid more than the other, so he chose to claim monthly benefits on that one.
- Claim a lump sum from the other salary continuance policy. The other policy gave him the option of claiming a lump sum in the event of a specific disabling injury, at the cost of foregoing monthly benefits. He decided to take it because he could use it on top of his other monthly benefits.
This was only possible due to the specific terms of each policy. Because Australia's workers compensation scheme will often not pay monthly benefits where other insurance is claimable, his employer's workers compensation lawyer was only too glad to help him navigate the policies and proved to be a good impartial source of information.
Who can apply for salary continuance insurance?
You cannot generally apply and get instant approval for a life insurance policy, and generally need to meet certain eligibility requirements. Because salary continuance plans are generally only available through superannuation funds, you will need to be a member of that fund in order to sign up. Even then, your application may still be subject to the insurer's underwriting process, which can affect both the cover you can access and your premiums.