We have been receiving a lot of enquiries about Personal Insurance, what income protection covers and the options are available from personal insurance policies.
What does income protection cover?
Income Protection pays you an ongoing monthly benefit in the event you are unable to work due to illness or injury.
How they define illness and injury depends on the definitions of the policy
A great policy (If I set it up, you’ve likely got this) would:
consider whether you had lost the ability to do one or more duties of your OWN occupation, and have been partially disabled for a single day. From there, if you met their definitions you would start accumulating payments after the waiting period, being paid 30 days later, AND
have your income locked in on an Agreed Value, so you didn’t have to prove it, and allow you to claim even if you were unemployed at the time you had the issue.
We saw a lot of claims during the GFC for mental health where, after being off work for an extended period, many people developed depression or anxiety and were not able to return to work. We may see the same thing at this time where people are not only losing their employment, they are also being socially isolated and constantly bombarded with the uncertainty that comes with the COVID-19 situation.
Conversely, a Poor Policy (think your default Income Cover in super) would:
only pay out if you were totally disabled for 30 days straight (a much harder requirement than above)
often these policies will only pay you the average of the last year’s income (which could include time off work) but in some cases only the last 30 days of income!
become inactive when you are off work, and therefore mean you cannot claim when you are unemployed.
Does Income Protection cover unemployment/redundancy or loss of your job?
No. It only covers if you cannot work due to illness or injury.
Side note if you have a Onepath policy and an ANZ mortgage there may be a benefit for your mortgage – please get in touch.
A lot of retail Income Protection policies do have built in financial hardship provisions, where if you have lost work or are undergoing hardship you can freeze the premiums for set periods, from 3 months to 12 months. This can be known as a premium waiver, premium holiday or unemployment premium waiver.
This can be great if the cost of the insurance sits heavy on your cash flow right now, to give you some breathing room.
Warning: If you opt to freeze your premiums you are not covered during that time. If you suffer an illness or injury while that policy is frozen, you will not be covered under that policy and be ineligible to claim.
Here’s an example.
Sharon cancels her Trauma benefit because it costs her about $100 a month and she really needs to tighten her belt and limit spending.
She freezes her policy to save on that premium. During that time she discovers a lump on her breast and has it checked, discovering she has breast cancer. She is not eligible to claim on that for her trauma benefit and will not get a payment.
Can I claim on anything else?
Trauma insurance pays a lump sum payment on diagnosis of serious illness, once you meet the definition in their PDS.
There may be circumstances in the most extreme cases of COVID19 that you could receive a trauma benefit. These definitions change from insurer to insurer.
A lot of Trauma policies include a provision payment where you require Intensive Care with requiring mechanical breathing/intubation for a minimum period of time (continuous).
In the event of a Coma there may also be a benefit if the minimum time frames are met. This time frame is usually 3 days, however the definition of a Coma varies between insurers.
Again these are in the event you are seriously ill due to the Coronavirus however although for the majority of the population this won’t be the case, it is good to know it is there.
Life and Disability Insurance
Some insurers are applying exclusions to Coronavirus for NEW applications on a case by case basis when there is evidence that they are a 'higher risk'. For existing retail policies you should be covered in the event you pass away due to complications around Coronavirus or are left totally disabled, if you have a retail policy you will insured. A proper retail policy should be what's called 'Guaranteed Renewable' and therefor they cannot alter your policy in such a way.
There has been some question on a number of Industry funds which have altered the definitions in their policies and added in Coronavirus exclusions. You can read more about this on the Australian Financial Review website here.
What are your other options if you are struggling financially?
If you are struggling financially during this time and your insurance premiums are feeling expensive you could consider the following:
Move the policy into superannuation (where possible) for the short term.
Change your premiums to monthly repayments to reduce the impact on cash flow (if you pay annually).
Consider reducing the cover to a lower level to reduce costs (but when you increase later you will need to apply again and go through the medical assessment, and your premiums may be higher).
If you cancel your insurances, you should be aware of the following things
Level Premiums: If your cover is on level premiums you have locked in the premium at the age you applied. If you cancel your current cover, and then reapply later, the premiums will be based on your age at that time. The older you are, the more expensive your insurance gets (exponentially more expensive).
You may have had a change to your health since you last applied and may have loadings or exclusions for these things on your policy or you may even be declined. This could be something as simple as a back issue or if you’ve put on weight.
Agreed Value policies are no longer available after the end of April 2020 (dates depend on insurer). If you cancel your agreed value income protection policy now, and re-establish the cover in 6 months, you will not be able to get agreed value meaning your cover may not be as high and will need to be proven at time of claim.
Everyone’s situation will be different, and each policy handles these things differently.
If you are experiencing financial hardship and need to consider your options, please get in touch to make sure that you’re fully informed before you do anything,
We understand and empathise with the pressure that many people and families are under in these trying times. If you require financial advice or quite frankly are just a little lost with this, and unsure about what to do about insurance, don’t hesitate to reach out.
Here’s how you can contact us:
Book a video or phone appointment here.
Call us on 03 9801 8822 or email firstname.lastname@example.org
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