Income Protection Insurance Waiting Periods

What exactly is an income protection waiting period?

An income protection insurance waiting period refers to the amount of time that you need to be off work (following the advice of a medical practitioner) before your benefit period commences. It generally starts on the day you have sought medical treatment/advice following a sickness or accident, and the Doctor confirmed you should not go to work.

What is the waiting period for income protection?

The waiting period for income protection refers to the period of time in days you must be unable to work before your benefit period commences and depends on the agreed terms of your policy when you applied for it. Waiting periods vary and can generally range anywhere from 14 days to 2 years, after which your monthly benefit is paid in arrears.

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Paying monthly in arrears means you may not receive your first payment for up to an additional month on top of your waiting period. Your insurer will then start to owe you money.

For example, if your waiting period is 30 days, you’ll generally only receive your first payment after day 60.

However, select insurers do allow you to go on partial disablement from the start of your waiting period, but these policies are very rare.

Income protection waiting period illustration

This 30 day waiting period example illustrates the timing of when a waiting period may start and when you could expect to receive your monthly benefit following the completion of the waiting period.

1 March 2017

 

Accident or illness occurs

5 March 2017

 

GP confirms that you cannot work due to the sickness or accident

Waiting Period (30 days)

4 April 2017

 

Benefit Period starts

4 May 2017

 

First monthly benefit paid
60 days since your GP confirmed you can't work due to the accident or illness (subject to benefit payment eligibility).

What are my income protection insurance waiting period options?

Your ability to earn an income is one of your greatest assets. Protecting that asset is key to ensuring you’re able to keep paying for your current lifestyle, as well securing your plans of retiring debt free.

Income Protection provides a monthly benefit for people who are not able to return to work for a short or long period due to an illness or injury. You have the option to choose a waiting period that suits your circumstances and financial and familial obligations.

Depending on the insurer you could choose a waiting period of 14, 30, 60, 90, 180 days, 1 year, or 2 years. Ideally, you would want to receive payment as soon as the injury or illness starts to affect your ability to pay for financial commitments, such as your mortgage, school fees, car payments etc.

How does my choice of waiting period affect my premium?

Generally the shorter you waiting period, the higher your premium will be, because it makes it potentially easier for you to claim.

Short waiting period Longer waiting period
14 to 60 days 90 Day, 180 days, 1 year, 2 years
Sickness or injury is usually less severe. For example, muscle or joint injury. Sickness or injury is generally more severe. For example, cancer or stroke.
Premiums are generally more expensive. Premiums are more affordable.
Receive your monthly benefits sooner. You’ll have to wait longer to receive benefits.

How does my waiting period affect my ability to claim?

You can’t claim income protection payments straight away after becoming ill or injured. You will receive your benefit once your claim has been accepted and your waiting period has been completed.

The longer your waiting period is, the more likely you are to recover before your waiting period ceases, so it’s more difficult to claim. The shorter your waiting period, the more likely you are to be still unable to work and thus receive benefits.

Case study: Alex, the non-smoking accountant, is a 35 year old male living in NSW and earns an annual income of $80,000.

The below illustration provides a monthly benefit of 75% of his salary ($5,000), on an indemnity policy with a benefit period to age 65.

Waiting Period Benefit Period Monthly Benefit Premium Premium as % of Salary
14 days To age 65 $5,000 $77.93 1.17%
30 days To age 65 $5,000 $43.61 0.65%
60 days To age 65 $5,000 $36.45 0.55%
90 days To age 65 $5,000 $29.72 0.45%
180 days To age 65 $5,000 $26.21 0.40%
365 days To age 65 $5,000 $22.24 0.34%
730 days To age 65 $5,000 $18.32 0.28%

How long before I can claim my income protection?

You can lodge a claim on your income protection the moment a Doctor or medical professional confirms that you cannot work due to an injury or illness. A doctor will generally provide you with an indication as to how long you can expect to be off work for. This will help you determine if your time off work will be longer than your waiting period, to help you decide whether or not to lodge a potential claim.

Most income protection policies require that you have a period of total disablement, usually a week to 14 days. Meaning, you need to be totally off work before being potentially eligible for the waiting period to begin. After that, you generally can go on a partial disablement claim if required.

The number of consecutive days required to be totally unable to return to work will differ between insurers. It’s important that you read through the product disclosure statements (PDS) of the insurers you’re considering, to see what each one offers.

When does my waiting period for income protection insurance start?

Your waiting period does not start when the injury or illness occurs, only when the medical professional says you should not work as a result of the sickness or accident will you waiting period start.

For example, you’ve had back pain for the last two months after a serious fall, but you’ve been ignoring it, choosing to work through the pain. Eventually, your sick leave is depleted, and you don’t want to use your annual leave. Finally, you decide to see a Doctor about the back pain. Only then, when the Doctor states you cannot work and should take time off, does your waiting period start.

How long will my Income Protection last?

Generally, your income protection policy will cover you for up to 75% of your salary and continue to provide protection up until your age 65.

Your benefit period depends on the policy you’ve chosen. Usually, your insurer will pay your monthly benefit for 2 to 5 years or until your age 65.

Can I get income protection with no waiting period?

In general, all income protection policies have a waiting period that is required. However, there are a few features that may come included in your policy or you may choose to add.

number-1Specified injury benefit

The insurance company will pay you an advanced minimum benefit if you suffered from an injury specified in their PDS, normally it would be something like a broken leg, arm or foot. So, you would, for example, receive a 3-month advanced benefit for a broken leg, and if after 3 months your leg has not healed and you can’t go back to work, then you’ll just go on with your normal benefits.

number-2Bed confinement option

A paid option that pays you a partial benefit during your waiting period if you are confined to bed for 3 days. From the 4th day on the insurer starts owing you money.

number-3Critical illness / Trauma insurance option

Generally a paid option. When you’re diagnosed with a critical illness, as defined by your insurer, for example, cancer, stroke or heart attack, the insurer will pay you up to six times your monthly benefit.

number-4Day 1 accident cover

Allows you to start receiving a portion of your benefit during your waiting period. Generally, for this benefit to kick in, you need to be off work for longer than 3 days as a result of an accident. Then the insurance company will start owing you money. Especially beneficial for people that are self-employed or in a manual type trade and don’t have sick leave to depend on.

Which waiting period should I choose?

Consider the following factors before choosing a waiting period:

  • Your employment status.
  • Affordability of premiums.
  • Upcoming financial commitments.
  • Leave entitlements.
  • Savings.
  • Saleable assets.

Your choice of waiting period for your income protection policy will largely depend on your employment status. A full-time employee might prefer a longer waiting period, which will result in a cheaper premium because they are entitled to sick leave and annual leave.

You also need to take into account your obligations. For example, if you have some money saved and do not many expenses to worry about, you might decide on a longer waiting period to lower your premium. On the other hand, if you are self-employed and do not have savings, a shorter waiting period with an added Day 1 accident option benefit might be more suited to your needs.

The 2 year waiting period is usually a popular choice with people who hold part of their income protection within their Superfund. However, when a policy is held inside Super, you must meet the policy definition of your claim, as well as the Super’s condition of release to get your money outside the superannuation environment and into your pocket.

To make your decision easier, you can compare one of 7 waiting period options using our income protection comparison tool, or if you have any questions, please ask these below

Published: September 12, 2017
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