Income protection benefits pay you a monthly payment if you lose or suffer a drop in your income due to illness or injury. In this blog, we look at how income protection benefits are calculated and what options you may have to claim on more than one income protection policy.
Income protection benefits are a monthly payment, not a lump sum
Income protection benefits are calculated based on your pre-disability income and are paid to you monthly while you are incapacitated and unable to work due to injury or illness.
This is different to other disability insurance benefits like TPD and trauma benefits, which you are paid if you become permanently unable to work due to illness or injury or you are diagnosed with a medical condition, for example, cancer, Multiple Sclerosis (MS) and Parkinson’s Disease. These types of claims are usually calculated and paid based on pre-determined benefit amounts and not based on any specific loss you have suffered.
For more detailed information about income protection benefits, you can read our earlier blogs:
- What is income protection and how do income protection claims work?
- What's the difference between income protection and TPD insurance?
What is an income protection benefit cap?
Income protection policies will pay you a monthly benefit which is based on the amount of your lost income if you get sick or injured and become unable to work.
Usually, the amount that you are paid is 75% or 85% of your pre-disability income. The monthly payment is capped at a ‘benefit amount’. In other words, the benefit amount is the maximum that you can be paid. You can read more detail about this in our earlier blog, “How much will my monthly income protection benefit be?”
What is my pre-disability income?
Most income protection policies are what we call indemnity policies, which means that you are paid a benefit based on your income earned in the 12 months prior to ceasing work due to injury or illness. Since March 2020, all new income protection policies have been indemnity policies.
Prior to March 2020, it was possible to get insurance policies which paid you a benefit amount which was pre-determined (i.e., a set amount) and not calculated with reference to your income in the 12 months before you ceased work. These policies are called agreed-value policies.
Therefore, depending on the type of income protection policy you have (and, in particular, the date of the policy), you will either be paid the agreed benefit amount or a benefit based on a percentage of your income in the 12 months before you ceased work if you cease work and become totally unable to work.
How is income protection calculated if I am only partially unable to work?
If you are partially unable to work (also called partially disabled), the benefit you will be paid is usually based on a comparison of your income now, compared to what it used to be and also your benefit amount.
We have explained how these calculations work in more detail in our earlier blog, “Income Protection benefits for partial incapacity”.
Claiming multiple income protection benefits
In most cases, you cannot claim multiple income protection benefits at the same time for the same injury or illness.
Having said that, it is possible to have more than one income protection policy and to claim on more than one policy if your income before you stopped working was more than the benefit cap on one of the income protection policies.
Consider this scenario
You become sick or injured and unable to work. Your pre-disability income was $5,000 per month, and you have two income protection policies:
- Policy A- with a benefit cap of $2,000 per month.
- Policy B- with a benefit cap of $2,000 per month.
You can claim on policy A and be paid the full benefit of $2,000 per month. Because policy A has only paid you $2000, and there is a further $3000 before you have reached your pre-disability income, you can also be paid the entirety of the policy B benefit.
You may also be able to make an income protection claim on more than one policy where the claims are made one after the other due to different waiting periods and benefit periods. That is, you make an initial claim, and once you have exhausted the benefits payable under that policy, you claim on your second policy.
Consider this scenario
- You have two income protection policies.
- Your first policy has a wait period (the time you have to wait after stopping work before you can make a claim) of 90 days and a benefit period (the duration that monthly payments will be made) of two years.
- Your second policy has a wait period of two years and a benefit period through to 65 years of age.
In this scenario, you can make a claim on your first policy and be paid for two years. By that time, the two-year wait period for your second policy will have passed, and you can then make a claim on that policy.
You can learn more about waiting periods in our earlier blog, “Income protection waiting periods”.
Get help from an income protection lawyer
Claims for income protection benefits can be very technical, particularly if there are multiple policies and/or offsets. We are experts at these claims, and if you are having trouble with an income protection claim or have concerns about your claim, you should get in touch for some free advice.
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