Income Protection: Supplementary provisions

When it comes to funding your lifestyle expenses and accumulating wealth, one of the biggest resources that you have is your capacity to earn an income.

If you were suddenly unable to work for a period of time due to a sickness or injury, Income Protection may be able to protect your earning capacity.

When an Income Protection insurance policy is being established, there are many important factors that are taken into account.

For example:

• Sum insured amount

• Benefit period

• Waiting period

• Agreed versus indemnity

• Ownership structure (super, non-super or super-linked)

• Stepped versus level premiums

• Pre-existing conditions, exclusions and loadings.

Other important factors are the specific provisions that you would like to hold within your Income Protection insurance policy. Generally, these provisions can be categorised into:

• Core provisions – features and definitions that are primary considerations when determining the need for Income Protection. For example, an Income Protection insurance policy that replaces your income if you were suddenly unable to work for a period of time due to a sickness or injury.

• Supplementary provisions – other features and definitions that are secondary considerations when determining the need for Income Protection. For example, an Income Protection insurance policy that also pays a Specified Injury Benefit in the event you were to suffer one of a list of injuries (e.g. fractures and loss of limbs/use of limbs).

The decision to choose an Income Protection insurance policy that is either focused solely on delivering core provisions or one which encompasses both core and supplementary provisions may come down to a cost versus benefit, as well as your individual preference for insurance cover.

An Income Protection insurance policy that encompasses both core and supplementary provisions provides you with enhanced coverage, however with it often comes higher insurance premiums. For example, in terms of enhanced coverage, the following features and definitions that we will discuss are generally only available where supplementary provisions also form a component of an Income Protection insurance policy.

Please note: Insurance policies do differ between insurers, so it is important to read your relevant Product Disclosure Statement and individual Income Protection insurance policy for further details.

Bed Confinement Benefit
The Bed Confinement Benefit is paid typically when you have been confined to a bed due to sickness or injury, for a minimum period of time (e.g. three days or more), and are currently under the care of a registered nurse (as directed by a medical practitioner). Once this minimum period of time has expired a portion of the sum insured amount (e.g. 1/30th for each day you are confined to bed) is payable for a specified period of time in addition to the usual sum insured amount.

This Bed Confinement Benefit will usually stop on the earliest of the following events:

• When you are no longer confined to bed

• At the end of the specified waiting period

• After 90 days

• When your insurance policy comes to an end.

Child Care Benefit
The Child Care Benefit reimburses the cost of child care fees (that can’t be recovered from another source) incurred whilst you are disabled due to sickness or injury and require additional child care assistance (by a licensed external child care provider) as a result of disablement.

The amount reimbursed per month is payable for a maximum period (e.g. 3-6 months) over the life of the insurance policy and the amount is often the lesser of:

• 5% of the sum insured amount

• $400-500 per month

• The additional child care cost incurred, less amounts reimbursed from other sources.

Specified Injury Benefit
The Specified Injury Benefit is paid when you suffer one of a list of injuries (e.g. fractures and loss of limbs/use of limbs) even if you are still working and earning your usual income. Typically, the Specified Injury Benefit is payable from the date of the injury, meaning the waiting period is waived.

Depending on the injury, the payment (equal to the monthly sum insured amount) can range from one month to 60 months. For example, if you were to suffer:

• A fracture of the leg (excluding ankle) then this benefit would be payable for two months

• Total and permanent loss of use of one hand or foot or sight in one eye then this benefit would be payable for 12 months.

The Specified Injury Benefit will stop being paid to you on the earliest of the following events:

• The benefit has reached the end of its specified injury benefit payment period

• Your benefit period ends

• Your policy ends.

Accommodation Benefit
The Accommodation Benefit provides a payment to assist in the accommodation costs of an immediate family member who has to travel from their usual place of residence to be with you in the event of bed confinement (certified by a medical practitioner) due to sickness or injury.

This benefit ($250 per day up to 30 days) is payable when the immediate family member needs to travel more 100 kilometres from their usual place of residence to be with you.

Moving Forward
Although Income Protection offerings by some insurers may not hold the abovementioned supplementary provisions, or they may hold these and many more, it is important to take the time to understand your individual Income Protection insurance policy. Being better informed about what you are covered for can help in the event that you need to make a claim in the future due to a sickness or injury.

If you need help in understanding the finer details of your Income Protection insurance policy then please contact us.