What is a benefit period for income protection?

Unexpected injuries or illness can be disruptive and stressful, and that’s before you consider the possible financial implications of being unable to work. Income protection insurance is designed to cover a portion of your wages for the length of the policy’s ‘benefit period’.

Let’s look at how benefit periods typically work, and some of the factors that may help you to figure out what a suitable period might be if you have the option to choose.

What is an income protection benefit period?

Income protection insurance replaces some of your lost income if you are unable to work due to injury or sickness. In the event of a successful claim, it usually offers cover for up to 75% of your gross wages for a maximum time period. This time limit is known as a benefit period.

The maximum benefit period for a policy can vary depending on the provider or policy you choose, and the level of income protection cover that you purchase. 

How long is a typical benefit period?

The length of a benefit period can vary, and it may be a short- or long-term arrangement or, depending on your insurer, a lump-sum payout. The benefit period is usually expressed either as a set time duration (e.g. two years) or as a maximum age for the insured person (e.g. up to age 65).

The table below shows the percentage of Canstar-rated direct life insurance products offering various benefit period options. As you can see, benefit periods of one and two years are commonly available across the products we rate, while there are fewer options for those looking for a benefit period below one year or above two years. Only one product that we rate gives customers the option of a benefit period with a maximum age.

Direct Income Protection Benefit Period Options
Benefit Period % of Canstar rated products offering this benefit period
6 months 56%
1 year 94%
2 years 100%
5 years 56%
To age 65 6%
Source: www.canstar.com.au; information correct as per Canstar February 2019 Direct Income Protection Star Ratings.

You can compare direct income protection products based on the maximum benefit period available, along with other factors like premiums and Star Ratings, with Canstar.

How do I choose a benefit period? 

When choosing the right income protection cover for you, one of the considerations is the length of benefit period you would like. 

The decision may ultimately come down to how much you are willing to pay for premiums. Generally speaking, the longer the benefit period, the higher your premiums are likely to be. That said, by shopping around you may still be able to find a policy with a benefit period on the longer end of the scale, but which still represents good value.

If you would like to protect your income against more serious injury or illness, such as permanent disability, a long-term period may be appropriate. However, if you are happy with more general cover, a short-term policy may suffice. 

Some other factors you might like to consider are:

  • Your expenses: Your ongoing expenses may determine the benefit period you choose in order to support your lifestyle. You may also choose to consider potential long-term future expenses such as school fees.
  • Debts you owe: It may be beneficial to keep in mind any loans, like a mortgage, you have and the duration of your repayment obligations.
  • Your super: Do you have any income protection cover in place through your super? If so, what is the benefit amount and duration of this insurance?
  • Your occupation: The risk associated with your profession and the likelihood of a long-term absence from work due to injury or illness may also be a consideration for some people. It could be a good idea to get expert advice if you’re unsure about the type of cover that might be suitable for your situation.

Benefit periods for specific injuries or situations

As well as a general maximum benefit period for the policy, some income protection policies may specify a benefit period applicable to particular injuries, illnesses or circumstances.

For example, a policy may specify a benefit period for certain named illness or injury types, as well as benefit periods for payments to cover specific types of rehabilitation or care.

When will my benefit period start?

Generally speaking, your benefit period begins after the following two things happen:

  • Your income protection insurance claim is approved by your provider. This may require you to send through certification from a medical professional relating to your injury or illness and from your employer regarding your inability to work.

and

  • You have fulfilled your waiting period requirements. Along with a benefit period, income protection insurance typically includes a waiting period. This is the amount of time you would have to wait following a claim being approved before receiving any payments, provided you are still eligible to receive them at the end of the waiting period.

When might your benefit payments finish?

Here are some reasons you would stop receiving benefits under your income protection policy:

  • Your benefit period ends: Once you reach the end of your policy’s benefit period, your payments will finish.
  • Your policy expires: To avoid this, ensure that your insurance policy is maintained by keeping up to date with premium payments.
  • You return to work: If your illness or injury no longer prevents you from working, your benefit period will end.
  • You pass away: Generally speaking, benefit payments finish when the policyholder passes away.

Image Source: Adam Tinworth (Unsplash)

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