Income protection insurance is a valuable benefit that can replace your income if you are unable to work because of illness or injury. Many Australians now have this coverage, yet few fully understand the extent of their coverage, whether it is adequate, how to make a claim or what may seem like hidden traps in the small print of their policies.
At Owen Hodge Lawyers, we like to make sure that our clients have the chance to make fully-informed decisions about financial matters, and we would be happy to help you understand and evaluate your income protection insurance. When necessary, we will also stand up for your rights in a dispute with your insurer.
What is income protection insurance?
Income protection insurance is generally designed to pay 75 to 80 percent of pre-injury salary. It comes in two basic varieties:
- Agreed value insurance, under which you would be paid a fixed-value benefit, determined on the basis of your income at the time your purchased the policy, and
- An indemnity value policy, under which you might be paid a higher or lower benefit, based on your income at the time you make a claim.
If you are at the beginning of a career and expect your income to increase, the latter might be a better choice, but not so if you are later in your career with a stable income.
Beyond the question of what threshold income figure is used, however, there is considerable variety in terms that govern:
- frequency of payments
- age limit restrictions
- duration of payments—will payments end after two years, or will the policy pay until your normal retirement age if you remain unable to work
- whether you must be unable to do any job suitable for you based on age, education and experience or just your usual job
- how long you must wait after the onset of your illness or disability before beginning to receive payments
Most people purchase an income protection policy through a life insurance carrier, their superannuation fund or a bank. It is clearly not something you should simply pick off the shelf, though. Choosing the right kind of coverage requires some careful assessment of individual risks and income needs.
Among the finer points you may want to consider whether you should look for a policy with index-linked premiums so that you know that your coverage will keep up with inflation. A non-cancellable policy will protect you from the risk that the insurer may reassess your health or other factors on each renewal, potentially raising premiums or refusing to continue protection. A policy with a guaranteed future insurability feature may allow you to increase your coverage without future underwriting, which might be important if your circumstances change with an expanding family or larger mortgage. It is also important to review your policy for offset clauses that would permit the insurer to reduce payments if you have income from other sources such as Centrelink payments.
The most important part of choosing the right policy, one that will provide you the protection you want at an acceptable price, is working with an advisor who can guide you through all the right questions and all the possible options. It is very difficult for many busy people to do this alone.
What if the insurer won’t pay?
What happens if you have handled the choice of your policy skilfully, paid premiums faithfully, then suffer an injury that will keep you away from work? The claims process can also be a bit complicated, and it comes at a time when you are probably not at your best, so we will be happy to help you through that process, if necessary.
Then the insurer refuses to pay. Sometimes the company will offer the opinion of a doctor who says the injury is not disabling. In other cases, the insurer tries the cancel policy, saying that there was non-disclosure, or insurance fraud. The insurer may even claim that the condition existed before coverage was in force.
This is when legal representation can truly show its worth. The attorneys at Owen Hodge Lawyers will lodge a dispute with the insurer directly where that approach looks like it may be fruitful or, failing that, take the case to Court. You deserve to receive the protection you paid for.
Income insurance protection can provide you and your family with important peace of mind about what might happen if you were injured or ill and became unable to work. It is important to choose the right policy and sometimes, to be prepared to take your dispute to the insurance company.