Income protection, sometimes called salary continuance or temporary incapacity cover, is the insurance most likely to help in the months after an injury and the least likely to be claimed. It pays a proportion of your income, typically up to 75 or 85 per cent, for a set period while you are unable to work because of injury or illness. Fault does not matter. Many people hold it through their super fund without ever having chosen it, and it sits alongside any CTP, WorkCover or public liability claim.

Key points

  • Check every super fund you have belonged to; default cover often includes income protection, and it is lost when the account is closed or becomes inactive.
  • The benefit is paid monthly after a waiting period, for a benefit period that may be two years, five years or to age 65 depending on the policy.
  • Benefits are usually reduced by other income such as WorkCover weekly payments, and are taxable.

Do you have it?

Log in to each fund or call them and ask what insurance is attached to the account. Insurance in super can be cancelled automatically when an account has not received a contribution for 16 months, or for low-balance and young members, so the cover you had two years ago may be gone. If a claim is possible, do not close or roll over the account until you have advice, because rolling over can end the cover before the claim is made.

Definitions that matter

Policies define disability in their own terms. A common definition is that you are unable, because of injury or illness, to perform the important duties of your usual occupation, are not working, and are under the regular care of a doctor. Some policies allow a partial benefit if you return to reduced hours or lighter duties. The waiting period, commonly 30, 60 or 90 days, runs from when you stop work or from when a doctor first certifies you unfit; check which. The benefit period is the maximum time the benefit is paid for a single condition.

Offsets

Most policies reduce the monthly benefit by other income you receive for the same period: WorkCover weekly compensation, sick leave in some policies, and sometimes the income component of a CTP or damages settlement. The offset clause needs to be read carefully before a damages claim settles, because the way a settlement is structured can affect the income protection benefit, and the insurer will ask for the settlement documents.

Claiming

Notify the fund promptly; late notification can affect entitlement. The fund sends the claim to the insurer, which will want a claim form, medical certificates and reports, employer statements about your duties and earnings, and tax records. Monthly claims require ongoing certification. Keep treating and keep the paperwork current. If the insurer declines or stops the benefit, the fund's internal complaints process comes first, then a complaint to the Australian Financial Complaints Authority, which is free. There are time limits for AFCA complaints, so act on a decline promptly.

Tax

Income protection benefits are paid as replacement income and are assessable income for tax purposes. Premiums paid through super are not personally deductible, though premiums for a policy held outside super generally are.

Frequently asked questions

Can I claim income protection and WorkCover at the same time? Usually yes, but the income protection benefit is typically reduced by the WorkCover payments. Read the offset clause.

How long does an income protection benefit last? For the benefit period in the policy, commonly two years, five years or to age 65, while you remain disabled under the definition.

My income protection claim was declined. What can I do? Complain to the fund, then to AFCA if unresolved. Get advice before accepting a decline; medical evidence often decides these disputes.

Sources

  • Moneysmart, Income protection insurance — moneysmart.gov.au
  • Moneysmart, Insurance through super — moneysmart.gov.au
  • Superannuation Industry (Supervision) Act 1993 (Cth), s 68AAA (cancellation of insurance for inactive accounts) — legislation.gov.au
  • Australian Financial Complaints Authority, Making a complaint — afca.org.au
  • Australian Taxation Office, Income protection insurance — ato.gov.au