Understanding Salary Continuance Insurance: A Safety Net for Your Income
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What is Salary Continuance Insurance?
Salary continuance insurance is designed to replace a portion of your salary if you’re unable to work due to illness or injury. It is commonly offered as part of a superannuation fund, with premiums automatically deducted from your super fund, reducing the need for out-of-pocket payments.
One key difference between salary continuance insurance and income protection insurance is portability. Salary continuance is usually linked to your super fund, meaning if you change superannuation providers, you may lose this coverage. On the other hand, income protection insurance purchased outside of superannuation or within super using a Retail life Insurance policy has the ability to be paid by yourself or by having a new rollover form completed for your new super fund.
How Does Salary Continuance Insurance Work?
Salary continuance insurance provides income replacement for a set period if you cannot work due to illness or injury. It typically covers up to 70% of your pre-disability salary, ensuring you maintain some level of income during recovery, though it may not cover all your expenses. Additionally, there is usually a waiting period of 30 to 180 days before benefits begin.
The benefit period for salary continuance insurance generally lasts two years or until you can return to work. Some policies may offer extended coverage up to age 65, but these often come with higher premiums. Since this insurance is frequently tied to your superannuation fund, switching super funds can result in losing coverage, so it’s essential to confirm the policy’s portability. Best to refer to the superfunds PDS for more information.
Why Do You Need Salary Continuance Insurance?
Salary continuance insurance might be a good option for you as it provides a financial safety net by replacing a portion of your income if illness or injury prevents you from working. However, it’s important to note that this type of insurance may not be as flexible or portable as individual income protection policies. This is particularly important if you anticipate changing super funds.
What to look for in a Salary Continuance Policy
When evaluating a salary continuance policy, consider the following features to ensure it meets your requirements:
- Coverage Amount: Salary continuance typically covers around 70% of your income, which may not replace your full earnings but can help cover essential living costs.
- Waiting Period: This refers to how long you must wait before receiving payments. The most common waiting periods are between 30 and 90 days, though some policies may offer options outside this range. Shorter waiting periods often come with higher premiums.
- Benefit Period: This is the length of time you will receive payments while you are unable to work. Common benefit periods are two years, but some policies may offer extended coverage, such as until age 65, depending on the terms and conditions.
- Portability: Salary continuance insurance tied to superannuation may not transfer with you if you switch funds. In contrast, a standalone income protection policy purchased through a Retail Life Insurance policy is portable, provides flexibility to have it funded through another super fund.
Salary Continuance vs. Workers’ Compensation
Salary continuance insurance is different from workers’ compensation. Workers’ compensation covers work-related injuries and is legally required for employers to provide. It only applies to incidents that occur during your employment or as a result of your job duties.
In contrast, salary continuance insurance covers you for injuries or illnesses that occur outside of work. For example, if you get sick or injured on holiday or during non-work activities, salary continuance insurance would step in to provide income support, whereas workers’ compensation would not.
Do You Already Have Salary Continuance Insurance?
Many people already have salary continuance insurance without realizing it, as it is often included as a default benefit in superannuation funds. To find out if you have coverage, you can:
- Check with Your Superannuation Fund: Contact your super fund or check your online account to see if salary continuance insurance is included in your benefits. It’s important to confirm details such as the waiting period, benefit period, and coverage amount.
- Review Your Superannuation Statements: These statements often list any insurance coverage, including salary continuance insurance, and provide details on premiums and coverage terms.
Do You Need Salary Continuance Insurance?
Whether you need salary continuance insurance depends on your individual financial circumstances. Consider the following factors:
- Financial Buffer: If you have substantial savings or a secondary source of income, you may not need salary continuance insurance. However, if you rely on your income to meet daily expenses, this coverage can provide valuable peace of mind.
- Income Protection Insurance Comparison: Compare salary continuance insurance with income protection insurance, which offers more flexibility, portability, and often allows for longer benefit periods. Income protection policies can also be tailored to your specific needs and often offer more comprehensive coverage options outside of superannuation.
Frequently Asked Questions and Answers
Is salary continuance the same as income protection insurance?
No. Salary continuance insurance is typically tied to your superannuation fund and may be lost if you switch super funds. Income protection insurance purchased inside/outside of super remains with you if you switch super funds and can offer more flexible coverage options.How long does salary continuance last?
The benefit period for salary continuance insurance typically lasts two years, but some policies offer coverage until age 65. The length of the benefit period is an important factor to consider when choosing a policy.Do I need a medical exam for salary continuance insurance?
Generally, no medical exam is required for salary continuance insurance if provided through your superannuation fund. However, if you’re purchasing a standalone income protection policy, a medical assessment may be required depending on the insurer, your medical history and level of coverage being applied for.Is salary continuance insurance tax deductible?
Yes, premiums paid towards your salary continuance insurance through superannuation are considered tax deductible to your superfund however when your receive benefits from your salary continuance you will need to typically pay tax on any benefits received in your personal name.Can I claim salary continuance insurance if I change jobs?
If your salary continuance insurance is tied to your superannuation, you may lose coverage when you change jobs unless you remain with the same super fund. Consider purchasing a standalone income protection policy if you want continuous coverage that is not linked to your superfund, but refer to the relevant PDS for more information.
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What would be an example of a Total Disablement definition for a Salary Continuance policy?
Hi Julius, Thanks for your question. Basically, Total Disablement can be a sickness or an injury where solely the Life Insured is not working in gainful employment and is unable to perform one or more of their important income producing duties of their usual occupation. During this time they must also be under the regular care of a medical practitioner and following their advice. It is important to add that as Salary Continuance cover is held inside Superannuation, you must meet a ‘condition of release’ from the Super Fund to receive those benefits.
Do you have to use up all your sick leave and long service entitlement before you can access your salary continuance insurance?
IE if your stated waiting period is only 30 days and you have 200 days sick leave, can you start claiming the 75% salary continuance immediately that the 30 day period from being absence from work?
Thanks for your question Tim and to answer this, it may depend on the type of salary continuance cover that you have. For example, is it issued as part of an Employer issued policy through your Superannuation (often referred as Group Insurance) or did you take out the policy yourself independently? If it was the first option that I mentioned, then their may be a stipulation that all sick leave and/or long service leave is used up before you can access the benefits within the policy. This would likely be stipulated in the PDS issued by the Insurer for this policy. The second option that I mentioned which may be an Income Protection Policy would generally mean you could access the benefits if your claim was approved after the waiting period even though you may have a ‘bank’ of sick leave entitlement sitting there. Unless the Life Insurer asked specific questions during the application process around accumulated sick leave or they asked you how long your income would continue for in the event of a disability, then the insured person may wish to just use their sick leave during the 30-Day Waiting Period only for example and keep excess sick leave for another time potentially? You would have to check what was asked during your application process under the Duty of Disclosure in this instance. This is general information Tim, and keep in mind that all Life Insurers are different and they can all have different procedures in assessing the potential to claim for the insured person, so it may be best that you check with the Life Company that issues your policy.