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If you have income protection insurance and find yourself in a position where you need to make a claim on your policy, the option of a lump sum payout may be worth considering.
Not all providers give you this option so you would need to check first with your policy and the product disclosure statement (PDS).
But if you are in a position where a lump sum payment is possible, then here is what you need to know.
How income protection works
Income protection insurance is designed to provide cover for part of your income, which can be up to 85% of your pre-tax income, according to Moneysmart, for a set period to help you pay any bills and living costs in case of a serious injury or illness that prevents you from working.
Insurance policies often come with extra options and questions you’ll need to answer so the policy can be tailored to your needs and preferences.
In the event of a successful claim, income protection insurance normally offers you a regular monthly payment. But one thing to consider may be whether you want a policy that offers you the option of receiving a lump sum payout in certain situations.
This could be useful if you find yourself in a position early on after an injury where you need to pay for some upfront medical costs or other treatments.
What situations may allow you to claim a lump sum payout?
Insurers that offer the option of a lump sum payout under their income protection products will have their own conditions, but there may be an option if you suffer one of the following events:
- total and permanent disability (TPD)
- pre-specified injury (pre-specified meaning named on the policy as an injury you’re covered for)
Again though you may want to check with your own provider and look at what is covered in the PDS of your particular policy. For example, Zurich’s PDS says a lump sum payout may be available for certain forms of cancer, stroke or heart attack.
The exact types of events that you can claim a lump sum payout for will depend on your policy, so it may be worth checking upfront with your insurer before signing up to anything.
When making a claim you may need to provide medical evidence that your condition is one that prevents you from working and meets the conditions of your policy.
Which income protection insurers offer lump sum payouts?
The following insurers on Canstar’s database provide income protection insurance products with the option of a lump sum payout in certain situations. This list is not exhaustive and provides a selection of policies only available at the time of writing.
Income protection with option of a lump sum payout
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| Provider | Product | Event | Lump sum/ Upfront payment |
|---|---|---|---|
| HBF | Ezicover Income Protection
(Sickness & Injury Cover) |
If you are diagnosed with cancer, stroke or a heart attack. | 3 times the monthly benefit. |
| Zurich | |||
| Medibank | Income Protection (Standard Cover) |
If the income benefit has been paid continuously during the entire benefit period and you are TPD and unlikely to ever return to work. | 3 or 5 times the monthly sum insured (depending on the benefit period of 2 or 5 years respectively). |
| NobleOak | FlexiCover Income Protection Insurance | If you suffer a specific sickness or injury (including cancer, stroke, heart attack). | 6 or 3 months worth of benefits paid upfront (depending on the waiting period of 30 or 90 days respectively). |
| RAC | Income Protect | If you die while receiving a benefit for total disability or specific injury. | 3 times monthly sum insured or pre-disability income (whichever is less). |
| RACQ | Income Protection |
Source: www.canstar.com.au – 2/09/2021. Based on direct income protection products on Canstar’s database. List may not be exhaustive. Terms & conditions apply to lump sum payout/upfront payments; refer to the PDS for more information.
If you’re considering taking out an income protection insurance policy, be sure to read the PDS and make sure you understand what payout options may be available and under what conditions.
Income protection cover may also be available through your super. Generally speaking, this type of cover only offers income protection benefits as an income stream rather than a lump sum, but it could be worth checking with your super fund to find out what options they offer.
Pros and cons: could a lump sum payout be a good option for you?
If you are eligible, whether a lump sum payout ends up being the best choice for you or not will depend on your personal needs and circumstances. There are a few general points to keep in mind when considering this as an option.
Taking your income protection benefit as a lump sum may, depending on your policy, preclude you from receiving any further benefit or income from your policy.
If your illness or disability will likely require an ongoing income stream to maintain or treat, a lump sum payout may not be a suitable option for you.
A lump sum payout may be beneficial if your injury or illness leaves you with immediate and significant expenses that need to be paid. A lump sum payout could be used to help you cover those costs.
The Australian Tax Office says you may need to declare any lump sum or regular payment from an insurance policy as part of other income you’ve earned, unless any tax has already been withheld. You will need to check this with your provider.
Cover image source: ChameleonsEye/Shutterstock.com
Compare Income Protection Insurance with Canstar
If you’re currently comparing income protection insurance policies, the comparison table below displays some of the policies currently available on Canstar’s database with links to the providers’ websites for a 30-39 year old non-smoking male working in a professional, white-collar occupation. Please note the table is sorted by Star Rating (highest to lowest) followed by provider name (alphabetical). Use Canstar’s Income Protection Insurance comparison selector to view a wider range of policies on Canstar’s database. Canstar may earn a fee for referrals.
This content was reviewed by Editor-in-Chief Nina Rinella as part of our fact-checking process.
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