Income Protection Insurance Claims​

The main function of income protection insurance is to offer financial support in the instance of an illness or injury that prevents the person from working. These health concerns can either be of a physical or psychological nature, provided that they’re formally diagnosable.

Income protection insurance claims are how insurance policyholders can receive compensation, and they come in two main types:

• Partial disability claims: These relate to an injury or illness that the claimant is expected to heal from and, as a result, return to work.
• Total permanent disability claims: Also referred to as a TPD claim, this pertains to an injury or illness that will prevent the claimant from returning to work, therefore impacting their long-term earning capacity.

Both types of claims are further broken down into two categories: indemnity value policies and agreed value policies. Indemnity value policies compensate up to 90% of the claimant’s pre-tax income for the first six months, and up to 70% for a designated period of time beyond that initial six-month period. Agreed value policies, on the other hand, compensate claimants based on a predetermined, agreed-upon number — one that doesn’t fluctuate depending on whether their income rises or falls.

With that said, there are two caveats: Firstly, agreed value policies became unavailable from 31 March 2020, yet there are those who had previously opted for this policy and have held it to this day (for whom the policy still applies despite its discontinuation). Secondly, a TPD claim may be compensated by a lump sum payment rather than by periodic instalments, as assessed on a case-by-case basis.

All income protection insurance policies involve both a benefits and waiting period, each affecting the compensation timeline in their own distinct ways: The benefits period is the length of time during which the claimant receives monthly payments based on the agreements of their income protection policy; the waiting period is the time the claimant must wait before becoming eligible to receive compensation following their injury or illness.

Policies with a shorter waiting period — two weeks, for example, are on the lower end of the spectrum — are generally more expensive than their counterparts, with cheaper policies coming with waiting periods that may extend across several years.

Price may also be affected by the source of income protection insurance, whether it’s from a private insurer, a union membership or — most commonly — through a superannuation fund; generally under the life insurance umbrella. As many as 70% of Australians receive their insurance through their super, with income protection insurance more often than not part of the default package.