We take financial risks all of the time such as home loans and business debts. We also have responsibilities to our family and children and therefore there is a risk that your income will not continue in order to service your assets and expenses. Income Protection is an instrument to outsource this risk to an insurance company.
Income protection insurance aims to protect (generally up to 75%) the life insureds income in the event that they are unable to work in their own occupation due to accident or illness.

Income protection policies vary greatly. Waiting period, benefit period, type of contract (agreed amount or indemnity), ownership structure and additional benefits are some of the features that need to be taken into consideration when matching your situation to a policy. Also the specific definitions within policies need to be taken into consideration.

How to increase your ability to make a successful claim?
1. Ensure that your policy meets your needs
Check your policy or have a qualified financial adviser check it for you. Some issues that may be relevant to your situation are:
- Blood borne diseases: These days, the majority of policies will pay a benefit in the event of needle stick injuries causing Hepatitis B or C or HIV. In these events it is highly likely that you will not be allowed to practice even though physically you may be able to. Older policies will exclude these conditions.
- Waiting Period: The waiting period is the amount of time that needs to pass since the start of disability before the insurance company will start to pay a monthly benefit – this can be from 2 weeks to 2 years. The longer the waiting period, the cheaper your cover will be. If you can afford to extend the waiting period as you only want cover for longer term disability, you can greatly reduce the cost of your insurance.
- Benefit Period: The benefit period is the maximum amount of time that an Income Protection benefit will be payable – this can be a set period (e.g. 2 or 5 years) or until age 65 or even 70. The longer the benefit period the more expensive your cover will cost.
- Waiting period qualification: Each insurance contract states that you may need to be ‘totally disabled’ for a period of time before you become eligible for a partial monthly benefit. The least amount of time is preferable as this will greatly increase your ability to make a claim in the event of less serious illnesses or injuries. Some older policies require you to be totally disabled for the whole of the waiting period whereas some policies do not require you to be totally disabled at all.
- Additional benefits: Income Protection policies often include additional benefits such as ‘specified illness’ or ‘specified injury benefit’. These enable the client make a claim for a specified amount in the event of suffering one of the listed conditions even if they do not affect your ability to work.

2. Have your policies reviewed regularly
Due to the increasingly open marketplace, Income Protection policies have improved greatly over recent years. It may be worthwhile to have your policy reviewed to ensure that your insurance contract has been updated in line with the market.
3. Ownership – Superannuation or not?
Recently legislation has changed so that insurance companies are now offering some income protection policies to be owned by super funds with a benefit to age 65. Having a policy owned by superannuation could potentially mean that premiums are payable from your superannuation balance
However, in many cases the some of the benefits cannot be released at the time of claim especially if you are under the “preservation age” (age 55 for many people).
As Basic income protection policies are generally owned in superannuation, you may be paying for benefits and features that are removed from the superannuation policy type. In general terms, only basic income protection policies should be owned via superannuation and potentially even these should be avoided if cash flow allows. Income Protection policies are generally fully tax deductible so there is no taxation benefit having the policy superannuation owned.
Considering that the premiums for super and non-superannuation are the same in most cases, the policies owned by superannuation generally do not have the same added features and benefits and are therefore more expensive with a direct comparison.
4. Agreed or Indemnity
An agreed policy ensures that the full benefit amount is paid in the event of a successful claim whether it reflects your income at the time of claim or not. An indemnity policy will require financial checks at the time of claim and your benefit (if the claim is successful) will be based on pre-disability earnings - i.e. 75% of monies earned in 12 months before claim. This could potentially result in a reduced benefit being payable if you have recently earned less than at commencement of the policy. ‘Pre-disability earnings’ is defined differently by different insurers.
It is important to note that if financial underwriting was not completed at application stage, financial checks will be required at the time of claim regardless of whether the policy is an agreed or indemnity type.
Whether an agreed or indemnity policy is suitable to your circumstances may reflect your employment status (self employed or employee).
5. Ensure that your policy includes a definition of disability that is relevant to your situation
Australian Income Protection policies commonly use three distinct definitions to assess degrees of disability:
Policy Definition What it means….
Duties Based You will be paid a full benefit if you are unable to perform income producing duties of your occupation and due to this you are not working. A reduced benefit will be payable if you continue to be in paid work.
Hours based You will be paid a full benefit in the event that you can not work in your own occupation for more than 10 hours per week. You will be paid a reduced benefit if you work in your own or any occupation for more than 10 hours.
Income based You will be judged as disabled if, due to illness or injury, you suffer a reduction in earned income of 20% or greater. If you continue to work and earn income, the income protection benefit that you receive will be reduced.

The majority of policies use the duties based definition however there are now policies that include all three definitions and enable the client to choose which definition they are best suited to at claim time.

Author's Bio: 

Leading life insurance advisers for personal insurances, Life insurance, income protection, key person, Trauma cover, Disability or compare existing personal cover. Call here for get advise about Income Protection 1300 447 710.