What Is An Income Protection Monthly Benefit?

In an unpredictable world, safeguarding your income has become increasingly vital. Income Protection policies offer a solution by providing a monthly benefit if you are unable to work due to illness or injury. This type of cover generally acts as a partial replacement of your income.

Published April 24, 2023

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What is a monthly benefit in income protection?

When you are on claim for income protection, the monthly benefit is the amount of money you receive each month. This benefit is designed to help cover a portion of your income when you are unable to work The amount of the monthly benefit you receive may vary depending on your policy type and whether you choose to have the full 70% of your income covered. However, it’s important to note that the specific terms and conditions of your income protection policy will determine whether the monthly benefit is less than 70% of your income.

How long will I receive my benefit for?

Generally, you will receive your benefit from the end of the waiting period until the earliest of:

  • The end of your benefit period: Typical benefit periods available include 1 year, 2 years, 5 years or to age 65 or to age 70.
  • Your policy expiry: The policies we compare generally expire at the age of 65 or 70, which is reflective of the retirement age in Australia.
  • Your death: If you pass away while on claim, your monthly benefit will cease and your policy will end.
  • Returning to work: If you return to work, your monthly benefit will stop being paid to you, even if your return to work is before the expiry of the benefit period.

Can my monthly benefit increase?

Yes, it generally is possible to increase your monthly benefit. There are typically several ways in which you can increase your monthly benefit:

  1. Inflation Protection: This feature offered by some insurers automatically increases your insurance coverage amount by the percentage increase in the Consumer Price Index (CPI) on the anniversary of your policy, keeping it up-to-date with the rising cost of living. You can opt-out of this feature if you don’t want your coverage amount to increase.
  2. Increasing Claims Option: This option increases your monthly benefit while you’re receiving benefits. Each year, your benefit amount will increase by either the greater of the Consumer Price Index (CPI) or 5%.
  3. Future Insurability Benefit: With this benefit, you can increase your insurance coverage without having to provide your medical history again, after significant life events occur. The maximum amount you can usually increase your coverage by depends on your insurer and is the lesser of 10% of your insured monthly benefit or $1,500.
  4. Superannuation Booster: This option increases your monthly insurance benefit by 5% if you or your employer is contributing at least 5% of your monthly earnings towards superannuation when you apply for the policy. Additionally, an extra benefit will be paid to your nominated superannuation fund.

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Can my monthly benefit be reduced?

Generally, all income protection policies will have a clause which states your income protection benefit will be reduced if your income protection monthly benefit and any other income you are receiving exceeds 70% of your income.

Amounts that are generally offset include regular payments made under:

This clause is inserted into policies so that the insured has an incentive to go back to work and is not receiving more than what they were earning prior to their claim.

Income Protection Benefit Periods

The benefit period in income protection refers to the period of time during which you will receive your monthly benefit if you are unable to work due to an injury or illness. Typically, the benefit period ranges from two years to age 65, depending on your policy and the options you choose. Choosing the appropriate benefit period is crucial since it determines how long you will receive payments.

Generally, shorter benefit periods result in lower premiums, but they may not provide sufficient coverage for conditions that may keep you away from work for a longer period. On the other hand, longer benefit periods can offer greater security but may come with higher premiums. Ultimately, the benefit period you choose will depend on your personal circumstances, including your age, occupation, and financial commitments.

Waiting periods vs benefit periods in Australia

Typically, a waiting period is the amount of time you must wait before your income protection benefits start to be paid out. During this period, you will not receive any income protection payments, and it can range from a few days to several months, depending on your policy. Alternatively, the benefit period is the length of time that you will receive income protection payments if you are unable to work due to illness or injury. Generally, benefit periods can range from a few months to several years, depending on your policy.

It is important to carefully consider the length of your waiting period and benefit period when choosing an income protection policy to ensure that you have adequate coverage in the event that you are unable to work.

Frequently Asked Questions and Answers

  • Is income protection paid monthly?

    Yes, if you are ill or injured and are unable to work for longer than the waiting period then you will receive a benefit which is paid to you monthly. You will continue to receive this benefit until your benefit period is over or you are able to return to work. You’ll generally be able to use this benefit to cover your costs while you focus on recovery.
  • Can you claim income protection if not working?

    Yes, you’ll typically be able to claim an income protection monthly benefit if you are unable to work due to an illness or injury as specified in your Product Disclosure Statement (PDS).
  • What is the maximum monthly benefit income protection?

    The maximum monthly benefit for income protection varies depending on the specific policy and the insurer providing the coverage. The amount of coverage you can receive will depend on factors such as your occupation, income, age, and health status. In general, income protection policies may provide a benefit of up to 70% of your pre-disability income, subject to certain caps and limitations. It is important to carefully review the terms and conditions of any income protection policy to understand the specific benefits and limitations that apply.
  • How often is income protection paid?

    The frequency with which income protection is paid depends on the terms and conditions of the specific insurance policy. Generally, income protection benefits are paid on a regular basis, such as weekly or monthly, in the event that the policyholder is unable to return to work. The amount and duration of the payments will also depend on the terms of the policy.

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