Income Protection Insurance

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Monthly Benefits

Unlike other types of insurance that usually pay your benefit in a lump sum payment, income protection insurance benefits are generally paid in monthly instalments.

When do you start receiving your Monthly Benefits?

Once you claim on your income protection policy, your waiting period will begin, and at the conclusion of your waiting period, your benefit period will commence. You will generally start being entitled to your monthly benefits once your benefit period commences.

When you actually receive payment of your monthly benefit will depend on the payment schedule of your insurer, that is, at what date during each month that they usually conduct their regular payments. 

How long will you receive Monthly Benefits for?

With most income protection policies you will generally receive your monthly benefits up until the earliest of the following to occur:

  • You are able to return to work

  • Your policy expires

  • You die

  • Your benefit period ends.

How much is paid with Monthly Benefits?

If you have an Agreed Value or Guaranteed Value policy, your monthly benefits are locked in at application time and are generally based upon up to 75% of your insured pre-application income.

If you have an Indemnity Value policy, your monthly benefits are generally based upon the lesser of:

  • The insured monthly benefit amount as set out in your policy schedule, or

  • Up to 75 per cent (or a similar proportion) of your pre-disability income.

With an Indemnity Value Policy, as your monthly benefits are based upon your pre-disability income, they can therefore be susceptible to any decreases in your income between application time and the time that you go on claim.

Monthly Benefit Example:

Gary has an Agreed Value income protection policy and is covered for 75% of his yearly salary of $100,000. His benefit period is for 5 years.

After suffering an accident, Gary claims on his policy. After his waiting period ends, he begins his 5 year benefit period.

The monthly benefit that Gary will receive during his benefit period amounts to $6250 ($75,000/12).

Are Monthly Benefits adjusted for inflation?

Most insurers offer this as a built-in benefit to account for inflation, your insurer will generally automatically increase your monthly benefit on each anniversary of the commencement date of your policy by the greater of:

  • The relevant year’s percentage increase in the Consumer Price Index or an indexation figure derived by your insurer, or

  • A percentage stipulated by your insurer in their PDS, which generally ranges from 3 to 5%.

As this increase is generally applied automatically each year by your insurer, you will need to make sure to notify them if you do not wish to have your monthly benefit increased. To account for the increase in your monthly benefit, your premium will also generally be adjusted.

Please note that this feature is not the same as the claim escalation benefit, which generally allows you to adjust your monthly benefits to account for inflation once you are on claim, or the guaranteed future insurability payment, which generally allows you to increase your monthly benefit by a certain percentage without medical underwriting prior to going on claim.

Can you increase your Monthly Benefit if your income increases?

If your income increases after your policy has commenced, some insurers offer the ability to increase the amount of your monthly benefit without further medical underwriting. Please consult your insurer’s PDS for more details about this feature.

Are Monthly Benefits Tax Assessable?

Monthly income protection benefits are generally assessable for tax purposes and therefore need to be declared in your tax return for the relevant tax year.            

However, as your monthly benefit is taxable, generally premiums paid towards your income protection policy are tax deductible.

If you require more information on monthly benefits or would like to compare income protection policies from the top 15 Australian insurers, please call us today on 1300 135 205.