Two clocks
Once illness or injury stops you working, two periods in the policy decide when money arrives and for how long. On the income line on the home page they are the gap and the band after it.
Waiting period
14 days two years
The time before payments start. The span above is the range Moneysmart says most policies offer.
To be eligible for payments, you must still be unable to work because of the illness or injury when the waiting period ends.
Benefit period
2 years · 5 years · to an age
How long monthly payments continue while you remain unable to work. Moneysmart says most policies run it for two years, five years, or until an age such as 65.
An illustration, with invented dates. Say a policy has a 30-day waiting period and a two-year benefit period, and its holder stops work through injury on 1 March. Nothing is payable for the 30 days. If the holder is still unable to work because of the injury when those 30 days end, they meet that condition for payments, with the policy’s own definition of disability and conditions still to be met; payments can then continue for up to two years while they remain unable to work.
Around both clocks sit the policy’s own terms. Each policy has its own definition of disability and its own conditions to meet before a claim is made, according to Moneysmart.
What the payment is measured against
Moneysmart describes the usual measure: a percentage of pre-tax income, for example 75% or 90%, with the benefit based on annual earnings in the 12 months before the illness or injury. It suggests doing a budget to see monthly expenses and the income that would need replacing.
The other features Moneysmart lists
- Minimum work hours
- Some policies may cover you only if you work a minimum number of hours a week; Moneysmart’s example is 15.
- Exclusions
- What the policy does not cover. Moneysmart’s examples are illness or injury arising from self-inflicted injury, or from something illegal you have done.
- Packaged cover
- Moneysmart’s life cover page says life cover can be bought alone or packaged with trauma, TPD or income protection insurance, and that in a package, any amount paid out on the other claims may reduce the life cover.
- Types of premium
- Moneysmart says you can generally choose to pay with either variable age-stepped premiums, which are based on your age and recalculated at each renewal, or variable premiums, which charge more at the start but do not change because of age, so increases generally come more slowly.
The measures APRA set out
APRA licenses insurers and monitors them under rules meant to keep them financially stable and able to keep their promises to policyholders, in Moneysmart’s description. In a letter, APRA set out measures “to address the poor performance of individual disability income insurance (IDII) and move the product to a sustainable state”.
One measure carried a fixed date: “With effect from 31 March 2020, APRA expects that life companies discontinue writing IDII contracts where insurance benefits are not based on income at time of claim, including agreed value (and endorsed agreed value) contracts.” The letter also says life companies that kept writing agreed value policies after 31 March 2020 faced the risk of APRA imposing conditions on their registration, or giving directions, to stop them. A footnote in the letter states: “An insurance policy benefit should not exceed a policyholder’s economic loss.”
On some of its measures for riskier product features, the letter sought feedback on design details by 29 February 2020 and said APRA would finalise and communicate its position on those details by 30 June 2020, so this letter is not the last word on them. These were the expectations the letter set for life companies, not the terms of any one policy, which are in that policy’s own documents.