How do income protection payouts work?

To get your claim started the first thing to do is let your insurer know that you need to make a claim. For your income protection insurance claim, you’ll need to provide the relevant evidence of a serious injury or illness and proof of your pre-disability income. The following documents may also be required by the insurer:

• A filled-out claim form
• Income statements
• Medical reports and/or hospital discharge forms
• Proof of identity (e.g. birth certificates, passports)
• Income tax notice of assessment
• Treating doctor’s statement.

Your insurer may also contact your employer or other parties to confirm the evidence you provide and establish what your regular duties are.

How your income protection benefit payments are calculated will differ between insurers. Typically, income protection insurance covers up to 70% of your pre-disability income. Some insurers will cover 70% of your pre-disability income at the start of your benefit period and reduce it after a set period of month has been completed  (e.g. 70% for the first six months and 50% for remaining benefit period).

The amount you’ll be paid each month may also be affected by workers’ compensation payments, Centrelink benefits and other sources of income you could gain access to during this period. You may also be paid less if you have a partial disability and are still able to work part-time, as opposed to having a total disability.

Subject to the terms of your policy, you’ll have to serve a waiting period and remain totally or partially disabled while serving it and be unable to work before you may be eligible to claim; these waiting periods can vary from days to months, or even years. Your first payment is generally paid one month following the completion of this period in arrears. If you want to continue receiving this payment, you may need to provide ongoing proof of your inability to work due to illness or injury to meet your insurer’s eligibility requirements.

Proving your condition may require you to fill out and submit several forms monthly. Learn a little about the process of getting income protection.

If you have an income protection policy directly with an insurer, you may be able to claim your premiums on your tax return. However, if you take out your policy through your super fund, you won’t be able to claim your premiums as they’re taken from your super balance.

This is not the case for other types of insurance that make a lump sum payment to compensate you for injury. This includes term life, trauma and total and permanent disability (TPD) insurance policies, which are not tax deductible.

According to the Australian Taxation Office (ATO), you will also have to pay tax on your income protection payments as a form of income.¹ Keep this in mind when it comes time to file your next tax return.