What is Income Protection and How Does It Work?

Income protection ensures that your income is protected. It does this by paying part of your income for a set amount of time if you are unable to work during an illness or because of an injury. It pays up to 85 per cent of your pre-injury income for a specified amount of time, making sure that you and your family are still able to live life without the worry of missing out on a significant amount of income. Income protection can be incredibly important, especially if you are self-employed, have dependent family members, or if you have a mortgage to pay. Income protection insurance makes sure that you can still make the necessary payments without added strain or struggle. 

You get to choose your waiting period for a claim when you take out income protection insurance. Usually, the waiting period for your insurance claim normally would be between two weeks and three months. If you pass the waiting period and you’re still unable to work, then you will have to prove to insurer’s that the reason you are unable to work is because of illness or injury.

The payments provided can be used however you choose, such as:

  • Paying off your mortgage
  • Paying off your credit card and other similar debts
  • Grocery payments and other necessary spending
  • Maintaining your standard of living
  • Keeping up with school fee payments
  • Helping you with your recovery costs

What is Total and Permanent Disability Insurance?

Total and Permanent Disability insurance provides protection for you if you are unable to work due to permanent disability or illness. You are able to tailor the protection due to your individual needs, including if you need any or own TPD insurance. For your own occupation cover, if you choose to make a claim then you will be paid out if you are no longer able to work in your chosen occupation.  For any occupation cover, you will only be covered if you cannot return to the occupation that you have the education, training, and experience for. If you would like to find out more about the difference between the two, read here

What are the Key Differences Between The Two?

The main difference between income protection insurance and total and permanent disability insurance is how they are paid out. Whereas income protection will replace your monthly income if you get injured or fall ill, TPD insurance will pay out a lump sum payment if you are unable to ever work again. Income protection insurance is designed to help you stay afloat as you recover, whereas TPD works on the basis that you will never fully recover. 

TPD is often less expensive to take out than income insurance because it is harder to claim back. Income protection covers more incidents; it provides a monthly benefit of up to 75% for the remainder of your benefit period. Income protection is easier to claim because you do not have to have a permanent disability. Your income remains more or less uninterrupted when you cannot work because your income protection insurance will pay out a percentage of your wages. 

There is also a difference in the taxation of the two. Whereas TPD premiums are not tax-deductible, the premiums of income insurance are. This is because the monthly benefit of income protection insurance is seen as part of your regular income, and so is taxed as such. 

Can I Combine Both TPD and Income Protection?

In short, yes you can combine both income protection and total and permanent disability insurance. Combining the two can save you money on your premiums and make the claims process much easier, should you ever need to make a claim. 

The two insurances are different, and designed to cover different circumstances. TPD is a lump sum payment made to you on the basis that you can never work again due to your injury or illness. Income protection is a steady replacement income while you are temporarily unable to work. 

The two types of insurance can definitely complement each other and you can use them both to your advantage. For example, income protection will only provide up to 75 per cent of your income. If you take out TPD insurance to cover the remaining 25 per cent, you are still at a full income while you are unwell. Similarly, when waiting for your TPD insurance payout (normally up to six months or more), you can use your income protection insurance to cover your expenses until this payment comes through. 

TPD and Income Protection insurance are two different types of income protection but can be used to complement each other. If you think you have a TPD claim, it is worth using our Claims calculator to work out how much you could be owed. For more information, please call 13 WMCW, and our advisors would be happy to talk you through your potential claim.