Income protection waiting and benefit periods, explained

Income protection pays a monthly benefit while illness or injury stops you working. Two choices shape how a policy works: the waiting period and the benefit period.

The waiting period

The waiting period is how long you must be unable to work before benefits start to accrue. Common options are 30, 60 or 90 days, with some policies offering shorter or longer periods. Benefits are usually paid monthly in arrears, so the first payment generally arrives about a month after the waiting period ends.

A longer waiting period generally means lower premiums, because the insurer pays for fewer claims.

The benefit period

The benefit period is the longest time benefits can be paid for a single claim. Common options include two years, five years, or up to a set age, such as 65. A longer benefit period generally means higher premiums.

Income protection held through super, especially default cover, often has a shorter benefit period than cover held outside super.

How much is paid

Policies commonly pay up to 70% of your pre-disability income, as the policy defines it, and some pay more for the first months of a claim. The insurer will look at your earnings when you apply, and again when you claim.

Tax

Income protection premiums for cover held outside super are generally tax-deductible. Benefits are generally taxed as income. For cover inside super, the fund generally claims the deduction. Tax depends on your circumstances, so speak with a registered tax agent.

Other features to ask about

• Partial disability benefits, if you can return to work in a limited way.
• Rehabilitation support, to help you return to work.
• Indexation, which can increase your cover each year in line with inflation.

More about income protection.