OK, so you know that income protection insurance is designed to replace your lost income if you’re ever unable to work because of an illness or injury. You may also know that the premiums for this insurance are tax deductible. You may even know that income protection premiums cost more in Australia than “regular” term life insurance premiums.
However, what you DON’T know can really affect the income protection insurance you get!
Just like any other type of insurance policy, there are going to be certain things that your income protection plan doesn’t cover. These things are called “exclusions”, and they’re always spelled out in the policy. Of course, you’ll have to compare income protection plans very carefully to make sure you know exactly how all of them differ. While other specific exclusions may be added onto a policy, you can always count on your income protection insurance NOT paying for:
1. Very high salaries
Most income protection plans come with an income cap – like $7,500 per month, for example — so if you make more than that, you won’t get the 75% payout that the sales copy promised you. Instead, you’ll get the maximum amount that your policy allows.
2. Breaking the law
If you drive drunk, get into an accident, and can’t go back to work for six months, don’t count on your income protection plan footing the bills. The same goes for any illness or injury that you suffer because you’re taking illegal drugs. Or, if you injure yourself while you’re trying to break into someone else’s home, you’re not going to get any money. Anytime you get sick or hurt because you were breaking the law, your insurance company will deny your claim.
3. Injuries you caused yourself
This exclusion was created to prevent people from hurting themselves just to make some quick cash. So, if you try to commit suicide or do something else that’s designed to hurt you, your income protection insurance won’t kick in. Your insurance company also won’t pay for injuries and illnesses that were caused by a mental disorder.
However, in order to deny your claim, your insurance company will have to prove that you INTENTIONALLY hurt yourself. If, for example, you accidentally cut off your hand while cutting down a tree in the backyard, you’ll be able to take advantage of your income protection benefits.
4. Acts of war
You don’t have to be a soldier to have this exclusion apply to you. That’s because this is the broadest exclusion you’ll ever see in the insurance industry! “Acts of war” can mean anything from a terrorist attack, to a riot, to some other type of social instability. And, the area you’re in when you get sick or injured doesn’t necessarily have to be engaged in a formal war for this exclusion to kick in.
5. “Normal” pregnancies and childbirths
Because there are so many other financial services you can apply for after a “routine” pregnancy — like maternity leave, for example — you won’t get to tap into your income protection benefits after you have an uncomplicated delivery, even if you wind up temporarily disabled.
6. Complications from elective surgery
If you’re choosing to go under the knife, you’re choosing to forfeit your income protection benefits if anything goes wrong. So, if you suffer a complication during your tummy tuck, don’t waste your time filing a claim!
7. Special terms
Your insurance company may want you to agree to certain special terms upfront that would affect your exclusions. So, make sure you know exactly what you’re agreeing to before you sign on the dotted line!