How does a Lump Sum Payout work?
If you work in a high-risk occupation or have dependents who rely on you financially, peace of mind regarding your financial wellbeing can be crucial. Income protection insurance is designed to provide cover for part of your income, generally up to 75%, for a set period to help ensure you can still pay the bills in case of a serious injury or illness that prevents you from working.
But 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 case of income protection insurance, one of those variable factors to consider may be whether you want a policy which offers you the option of receiving a lump-sum payout in certain situations.
While only some income protection insurers offer you the option of receiving certain benefits as a lump sum, your personal needs and circumstances may make it worth considering. It’s worth noting that in the case of policies that do offer a lump-sum payout, it generally won’t be something you need to opt into or specify that you want when you first take out your policy. That being said, you should always check the PDS for any specific requirements or rules attached to the product regarding lump-sum payouts.
In the event that a claim you’ve made is approved and your policy offers the option of a lump-sum payout, you’ll generally be asked what form you want your payout to take; a regular income stream, or a lump sum.
Whether you choose a regular monthly payment or a lump-sum payout will depend on your personal circumstances and preferences at the time.
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What situations may allow you to claim an income protection insurance lump-sum payout?
Generally speaking, insurers that offer the option of a lump sum payout under their income protection products will offer it if you suffer one of the following events:
- Total and permanent disability
- Pre-specified injury (pre-specified meaning named on the policy as an injury you’re covered for)
- 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.
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, as at the time of writing:
If you’re considering taking out an income protection insurance policy, be sure to read the Product Disclosure Statement (PDS) and check what payout options are offered by that specific policy.
Income protection cover is also widely available to individuals through their 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.
Could a lump sum payout be a good option for me?
Whether a lump-sum payout ends up being the best choice for you or not will depend on your personal needs and circumstances. That being said, there are a few general points to keep in mind when considering it as an option.
The first is that 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. This means that 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.
That being said, a lump sum payout could 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.