Choosing an Income Protection Insurance Policy - Part 3

How much will you receive?

Income protection policies have a formula for calculating how much you will be paid. It may depend on your income at the time you took out the policy or your income over a number of years. The schedule attached to your policy will tell you how much you will receive every month.

The insurer may not check that you have correctly stated your income at the time you take out the policy. They may only check it when you make a claim. If, for example, you are self-employed, make sure you can produce tax returns, invoices or other documents establishing your income. Otherwise, the insurer could pay you less.

For further information on income protection insurance, visit ASIC's page on Insuring Your Income.

See Part 1
See Part 2

© Australian Securities & Investments Commission. Reproduced with permission.

Choosing an Income Protection Insurance Policy - Part 2

What kind of cover do you want?

Once you've decided you want to take out cover, you need to consider how comprehensive you want the cover to be. The more comprehensive the cover, the more expensive it will be.

1. Do you want to receive a benefit if your disability is: - partial (eg you can return to work part time) or total

- permanent or temporary

2. Do you want to be covered if you are "disabled" in a broad or narrow sense? Different policies will consider that you are disabled if you are unable to do:
- your usual occupation
- any occupation to which you are suited by education and training or
- any occupation at all.

3. Do you want to receive a benefit for a disability that is the result of:
- an accidental injury
- sickness or illness or
- both?

4. If the policy covers sickness or illness, does it cover "pre-existing" illnesses?

A pre-existing illness is one that you:
- may have had before you took out the policy (even if you have recovered) or
- one that you had symptoms or treatment for (even if it was not severe enough to prevent you working).

This is particularly important if you are taking out a new policy each year (instead of paying an annual premium to continue an existing policy). The insurer may have the right to refuse a claim if you contracted an illness under one policy, but were not disabled until after you had taken out the new policy. The illness becomes "pre-existing" and is therefore not covered under the new policy.

5. How long do you want to receive benefits?

For example, benefits for temporary disability will usually be limited to a period of one or two years only.

6. Do you want to receive an insurance payment even if you are receiving other money?

Some policies will not make payments (or will reduce the amount they pay) if you are getting money from another source as a result of the accident or illness. For example, if you are getting workers' compensation or disability payments through Centrelink, the insurer could pay you less or not pay you anything.

7. Does your policy cover you if you aren't working when the disability occurs? For example, you may be between jobs or a seasonal worker moving from job to job.

See Part 1

See Part 3

© Australian Securities & Investments Commission. Reproduced with permission.

Choosing an Income Protection Insurance Policy - Part 1

Most people only read their policy from cover to cover when they need to make a claim. Unfortunately, by this time it's often too late.

In 60% of cases involving disputes over unpaid claims during 1999, consumers did not have the insurance they thought they did. Make sure you know up front what to expect from your policy. Courtesy of ASIC'S comsumer site FIDO, here's what to look out for so you get the cover you need:

Is Insurance Part of Your Superannuation Package?

Before deciding whether to insure yourself against loss of income, check if you already have disability insurance through any superannuation fund you contribute to. If you do, check what sort of insurance it is and when it will pay.

Superannuation funds commonly offer insurance that pays benefits if you become permanently disabled and cannot return to work (to replace at least some of the income you would have earned if you were still employed). It is usually (though not always) cheaper than a policy you take out yourself. Your super fund's product disclosure statement (PDS) tells you about your insurance coverage. Ask you super fund for a copy of your PDS.

See Part 2

See Part 3

© Australian Securities & Investments Commission. Reproduced with permission.

Forgotten Tax Deduction: Income Protection

While life insurance is not tax deductible, income protection insurance is.

Payments are typically made monthly on these policies but can usually be paid up to a year in advance.

June is a great time to maximise your tax deductions. If you pay your annual premium now as a lump sum, you can then claim a tax deduction for the full amount in this years tax return.

Compare Private Health the Easy Way

The Australian Government has introduced a comprehensive, independent website that shows an overview of every available private health insurance product from every fund.

It's controlled and run by the Private Health Insurance Ombudsman and it includes a simple search facility that makes it easy to find and compare all the products that fit your needs.

You can now easily compare private health insurance products at http://www.privatehealth.gov.au/.