Income Protection Monthly Benefits Explained
The Income Protection monthly benefit is the amount you receive each month while on claim. The benefit is designed to help cover part of your income while you are unable to work.
Published July 4, 2018
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You can receive up to 70% of your income per month when you go on claim, however, how much you receive will depend on what policy type you have and if you want the full 70% of your income covered.
Income Protection Policy Types:
Generally, there are two policy types available:
Your income agreed to at the time of your policy application and is guaranteed when proof of income is provided to the insurer.
Your benefit is not guaranteed and will be the lesser of:
- The insured benefit as set out in your policy schedule; and
- 70% of your pre-disability income
Indemnity policies are generally cheaper than agreed value policies as they do not require you to prove your income at the time of your policy application and therefore your benefit is susceptible to any reductions in your income.
When does the benefit begin?
You will start to receive your monthly benefit when your benefit period begins, which is at the end of your waiting period.
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?
You can opt to increase your monthly benefit in a number of ways:
1. Inflation Protection
Select insurers will generally offer ‘Inflation Protection’, also known as Benefit Indexation, which increases your benefit by the increase in the Consumer Price Index each year. The increase is made on the anniversary of your policy.
Please note while this is automatically applied to your policy, you can opt out of the increase if you wish.
2. Increasing Claims Option
Increases your monthly benefit while you on claim. Your benefit will increase each year by the greater of CPI or 5%.
3. Future Insurability Benefit
The Future Insurability Benefit allows you to increase your level of cover when significant live events occur without submitting your medical history again.
Depending on your insurer, the maximum amount you can generally increase your cover by is the lesser of:
- 10% of your insured monthly benefit; or
- $1,500
4. Mortgage Booster Option
The Mortgage Booster Option allows you to increase your cover by 5% if you are contributing at least 5% of your monthly earnings towards paying a mortgage on your main residence at the time of the policy application. Generally this will be paid for a maximum of 24 months.
5. TPD/Severity Booster Benefit
The TPD/Severity Booster Benefit increased your monthly benefit by one third if:
- You have been paid for monthly benefit for more than 6 consecutive after the end of your waiting period
- If you continue to be totally disabled and unable to perform at least 2 of the activities of daily living
- Are under the care and supervision of an adult
6. Superannuation Booster
The Superannuation Booster Option increases your monthly benefit by 5% if you or your employer is contributing at least 5% of your monthly earnings towards superannuation at the time of the policy application. An additional benefit will be paid to the superannuation fund you have nominated.
7. 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:
- A workers compensation; or
- Motor accident claim; or
- A claim made under any similar state or federal legislation; and
- Regular payments made from another insurance policy or from a superannuation/pension plan that you did not disclose when you applied for your policy, or when you applied for an increase in cover.
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.
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