Salary continuance insurance
Both salary continuance insurance and income protection offer an income stream if you're no longer able to work. But there are some key differences between the two cover types.
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Salary continuance insurance offers you some protection against loss of income if you're unable to work due to an accident, injury or illness. It is very similar to income protection insurance, but it's not the same. Let's take a look.
What is salary continuance insurance?
Salary continuance insurance provides you with a monthly financial payment if you are forced to temporarily or permanently stop work due to an illness, injury or accident. It's similar to income protection but is held within a super fund. This means that you pay insurance premiums out of your super balance rather than paying directly from your bank account.
It's most commonly offered to employees in a group plan and can be a really helpful backup should something go wrong. However, it's not tax-deductible and is usually only payable for two years, unlike other income protection.
Types of salary continuance
The two main types of salary continuance insurance are:
- Permanent. 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 being unable to work any job with no signs of recovery.
- Temporary. Salary continuance cover will only pay you for a specific period of time, unlike income protection, which usually stops at 65. The total, maximum amount of time the policy can pay out for is known as the benefit period. This is typically for two 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.
What does salary continuance insurance cover?
Below is a list of some of the injuries and accidents salary continuance insurance can sometimes cover:
- Full, permanent disability. If you become permanently disablement, policies will usually pay out 100% of the total monthly benefits for the full benefit period (usually 2 years).
- 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. 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 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, 24 months for total blindness or 60 months for the total loss of multiple limbs.
Salary continuance insurance benefit
Benefit payments for salary continuance are usually made on a monthly basis. They will start at the end of your waiting period, which is usually between 30 and 90 days. This is the time you have to wait after you have put in a claim and it has been accepted.
How long will I continue to receive a salary continuance insurance benefit?
Most salary continuance policies have a benefit period of two years. This means you can receive 24 monthly payments in total, usually at 75% of your income, while you're not able to work. However, this payment will stop at the end of the benefit period, even if you're still unable to work.
Group salary continuance insurance
Group salary continuance insurance, sometimes referred to as group income protection, is another type of cover that provides a monthly benefit to replace up to 75% of your income, when you are unable to work in normal capacity due to an illness or injury. Group salary continuance cover is only available to employees and members of group super funds. It's often cheaper because it's purchased at wholesale rates. However, there are a few drawbacks as well.
Pros and cons of salary continuance insurance
Still not sure if it's for you? Check out the pros and cons of salary continuance insurance below:
- Could be suitable if you have just entered the workforce.
- Doesn't impact your cash flow as premiums are taken directly from your super balance.
- Premiums tend to be cheaper than standalone policies because they are usually bought in bulk.
- Some funds automatically accept you for cover without a health check.
- Premiums are not tax-deductible.
- You only receive a two-year benefit period, which may require a longer period of recovery.
- Premiums are paid through your super fund, which will eat into your retirement savings.
- If you're covered under a salary continuance group policy, your cover will stop when your employment has been terminated.
- There can be hold-ups in receiving payment because the insurer pays the benefit to the super fund, which will then pay you.
- If your super contributions stop, your super falls below $6,000 or you change funds, your insurance may cease.
- Claiming can be complicated, especially if you don't have a nominated beneficiary.
Multiple salary continuance insurance policies
Some of the features and options of multiple salary continuance insurance policies may include (but not limited to):
- Your choice of benefit period. You have the option to choose how long you would like to be covered for, usually from 2 years, 5 years or up until the age of 65.
- Your choice of waiting period. Waiting period is the amount of time you will have to be unable to work until you receive your first benefit payment and it is usually available from 30, 60, 90 or 180 days.
- Death benefit. A multiple of the insured salary amount is payable if the policyholder dies.
- Total and permanent disability benefit. A benefit amount is payable if the insured employee is unable to work due to an illness or injury.
- Partial disability benefit. If the policyholder can only work at a reduced capacity due to an illness or injury after a predetermined amount of time from suffering from a total disablement, a benefit will be payable.
- Recurring disability benefit. If the insured member is suffering from a relapse of a disability that the member has obtained the benefit payments for upon returning to work, the waiting period will be waived.
- Rehabilitation assistance. All the rehabilitation costs that incur during the period of your illness or injury may be reimbursed.
- Interim cover. Automatic accident cover for when the member's application has not been yet approved and/or was being underwritten.
- Guaranteed renewable cover. The policy will be renewed each year, as long as the premium payments are met and no further medical exam is necessary, regardless of the changes in health.
- Worldwide, 24/7 cover. Cover will be provided all year round, no matter where you are. Depending on your employer's agreement with the insurance provider, you may also apply for group life cover and/or group TPD cover if they are on offer.
Salary continuance insurance vs income protection
If you're looking for protection that is outside of superannuation, salary continuance insurance is probably not for you. Income protection insurance offers cover for up to 85% of your income and is generally more comprehensive than group salary plans put together by employers. It also means you won't be restricted by super rules when accessing your benefits.
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Questions you still might have
Can I claim more than one?
Yes, but most income protection policies have built-in offset clauses. This means you can generally only insure up to 75% of your salary. This is to prevent you from taking out two policies and trying to claim on more than 100% of your policy.
Is salary continuance insurance tax-deductible?
No, unlike standalone income protection, premiums are not tax-deductible with salary continuance insurance.
Who pays salary continuance insurance premiums?
Ordinarily, it's you. Premiums are deducted from your super account. Some companies will apply for a group salary continuance insurance policy as part of a benefit they give to employees. 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
Is salary continuance insurance underwritten?
Salary continuance insurance is not usually underwritten. It's one of the few ways Australians can access affordable cover free from medical underwriting.
What is the difference between salary continuance and income protection?
The main difference between salary continuance and income protection is that the former is only available through your super fund. However, there are a few other important differences.
Does salary continuance insurance cover redundancy?
No. It generally only covers you if you are unable to work due to an illness, injury or accident that prevents you from doing your job. If you want cover for involuntary redundancy, look at redundancy insurance.
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