Salary continuance vs Income protection insurance: What is the difference?
In general, both insurances provide income replacement when the insured is unable to work due to illness or injury. However, getting your insurance from a broker, through your super fund, or your employer will have different benefits and limitations.
This article will help you make an informed decision on which insurance is best for you.
Difference between Salary Continuance and Income Protection
While both insurances provide the same financial support, where you get them can affect the benefits that you can claim. You may obtain your income replacement through:
Broker or Insurance Advisor: Customised and Comprehensive
- Personalised Insurance Advice: Working with an advisor means getting personalised advice and insurance solutions that address your specific needs. You will also get access to multiple insurance provider options that best suit your financial situation.
- Customisable Plan: With individual income protection insurance, advisors can help you include coverage riders to make your policy more comprehensive.
- On-going Support: Having an insurance advisor means there is a specific person who will handle your plan. If you need adjustments on your benefits in the future, advisors will become handy.
- Easier Claims Process: Your insurance advisor will also help you when you need to process a claim.
Superannuation Fund: Convenient and Affordable
- Automatic Coverage: Most super funds offer automatic income protection to their members. This is an easier way to get coverage.
- Lower Premium: Given the bulk purchase and limited coverage, premiums for group insurance typically has lower premiums.
- Limited Customisation: Group coverage typically has standardised coverage. The benefits and terms of the policy may be insufficient to your needs.
- Not Flexible: Should you change your super, you may lose your coverage.
Through Employer: Accessible and Simplified Application
- Group Insurance Benefit: Most employers offer group income protection insurance to their employees. This makes the coverage accessible and affordable.
- Automatic Cover: Employees who meet the eligibility criteria will be covered without evidence of insurability.
- Limited Coverage: Group insurance normally would have an Automatic Acceptance Limit. This is a cap that limits the benefits and amount of coverage to the insured due to its automatic coverage.
- Job-dependent: The policy is tied to your employment and changing your job means losing the coverage.
What is Salary Continuance Insurance?
Salary continuance insurance is commonly offered by an employer or within a group super plan. This insurance provides a financial runway to the insured who is unable to work and is recovering from sickness or injury. The standard term of this coverage is between two years to five years, depending on your employer or your super.
It is important to note that should you change work or super funds in the future, you may lose this coverage.
How Does Salary Continuance Work?
Salary continuance provides access to a percentage of your monthly income when you are unable to work due to illness or injury.
Overview of salary continuance:
- Waiting Period: Typically, there is a 30 to 90-day waiting period from the time of disability before the benefit pays out.
- Coverage Period: Group salary continuance would normally have up to two years of benefit period.
- Benefit Amount: The income replacement level will depend on your super or employer and is standard for all members.
- Claims Process: Your company HR or your super trustee can help you in processing claims and communicating with your insurer.
When Would You Need Salary Continuance?
To keep it simple, if you are reliant on your income and would likely face financial hardships when your income stops, then you need a salary continuance.
Other factors you need to consider to know if salary continuance is for you:
- You do not need your whole income to be replaced when you become unable to work.
- You are amenable to a limited coverage period and the possibility of applying for another policy when you change jobs.
- You are looking for a relatively affordable option.
What is Income Protection Insurance?
Income protection insurance provides up to 70% of your monthly pre-disability income. This allows the individual to recover from sickness or injury without the financial stress of being unable to work.
Income protection is the more flexible and portable option of income replacement insurance. It provides better coverage for people who want to have financial security.
How Does Income Protection Work?
This policy offers a more comprehensive and higher percentage of income replacement coverage.
Overview of Income Protection Insurance:
- Waiting Period: Same with salary continuance, income protection typically has a 30 to 90-day waiting period from the time of disability before the benefit pays out.
- Coverage Period: This can be customised based on your need for financial security. Most income protection can cover up to age of 65 years old.
- Benefit Amount: Income protection insurance pays up to 70% of your pre-disability monthly income to fund your treatment, recovery, or living expenses.
- Claims Process: You have the option to file a claim process individually or seek the help of your insurance advisor for a higher chance of approval.
When Would You Need Income Protection?
Every individual who is generating an income, whether for personal or for family will highly benefit from income protection.
Other factors you need to consider to know if income protection is for you:
- You need a higher income replacement percentage.
- If you have a complex financial situation that needs comprehensive coverage.
- If you want a longer coverage period.
- If you want help from an insurance advisor.
How Do Salary Continuance and Income Protection Insurance Compare?
| Through Broker | Through Super Fund | Through Employer | |
|---|---|---|---|
| Policy Type | Income Protection | Salary Continuance | Group Salary Continuance |
| Coverage Period | You have the flexibility to choose your coverage for either 2 years or until the age of 65 | Typically, coverage is between 2 to 5 years | Usually, 2 years, depending on your employer |
| Amount of Benefit | Covers up to 70% of pre-disability monthly income | Limited and could be lower benefit amount | Employee insurance benefits offer standard coverage to all members. That could mean the employee may not maintain the same level of income replacement |
| Cost of Premium | Premiums will depend on many factors such as age, occupation, and details of coverage | Given the limited coverage and flexibility, bulk insurance tends to have lower premiums | Given the limited coverage and flexibility, bulk insurance tends to have lower premiums |
| Underwriting | You are typically required to undertake a comprehensive underwriting process. This can provide you with peace of mind that the insurer is aware of your medical history, making the claims process smoother and less stressful | These policies are often not underwritten and are offered without medical evidence. They may also exclude all pre-existing medical conditions that can significantly impact your ability to claim | Employee insurance benefits often have automatic cover for employees who meet the eligibility criteria without evidence of insurability |
| Payment | Directly and individually paid by the policy owner | Premiums are taken from your superannuation balance | Paid by the employees’ superannuation balance |
| Best For | For an individual who wants to have more comprehensive income protection coverage | For individuals who want affordable options and easy payment set up | For eligible employees who are not able to apply for an individual policy |
| Tax-deductible | Premiums paid for income protection insurance are tax-deductible | Premiums paid for income protection insurance are tax-deductible | Premiums paid for income protection insurance are tax-deductible |
| Medical Exam | Health questionnaires and medical exams are sometimes required as part of the insurance application | Medical and physical exams are usually not necessary for group policies | Medical and physical exams are usually not necessary for group policies |
| Flexibility | Customisable and can be tailored to your financial needs | Group policies have definite terms and details that are standard to all participating individuals in the plan | Group policies have definite terms and details that are standard to all participating individuals in the plan |
| Waiting Period | Depending on your insurer, the typical waiting period is between 30 to 90 days | Group insurance has a standard waiting period set out to all eligible members of the policy | Group insurance has a standard waiting period set out to all eligible members of the policy |
How to Choose Which Insurance Option is Best For You?
If you are still confused about which income replacement insurance option to get, consider the following:
- Your income level: How much coverage you need is dependent on your level of income. Higher income needs a more comprehensive insurance plan to cater to a more complex financial requirement.
- Current financial situation: Despite providing the same benefits, premium costs between salary continuance and income protection are different. Choose one that best works on your financial situation.
- Age and health: Your age and health condition will factor in computing for premium, especially with income protection.
- Career goals: Your career plans can determine your income. If you are planning on climbing the corporate ladder with the aim of having a larger income, customised coverage is what you might need.
- Health and injury risk: If your work or lifestyle is prone to getting you ill or injured, income replacement is necessary. Working with an expert insurance advisor can help you narrow down your options for insurance providers.
Insure Yourself and Your Income With Curo Financial
Protecting your income means taking care of your family even if you get severely ill or injured and you are unable to work. Having income replacement insurance can maintain financial stability for yourself and your family.
At Curo Financial Services, we will help you protect one of your greatest assets, your income. We will provide you with expert and customised insurance advice so you can make an informed decision on which income replacement insurance is best for you.
FAQs
Is Salary Continuance the Same as Income Protection?
Both provide the same benefit which is income replacement when the insured suffers from illness or injury which prevents the insured from working and producing an income. However, there are differences between the two such as where the policy was held and flexibility of the coverage.
How Long Does Salary Continuance Last?
Coverage term for salary continuance insurance can be between 2 to 5 years or until the insured is fully recovered. The benefit term is mainly dependent on the employer’s discretion of the group insurance.
What are the Disadvantages of Claiming Income Protection Through Superannuation?
Claiming income protection that pays through your superannuation will increase your taxable income component, therefore, decreasing the amount of benefits that you will receive. Read more about taxes on income protection insurance from the Australian Taxation Office.
What is the Waiting Period for Salary Continuance Insurance?
The usual waiting period for salary continuance insurance is between 30 to 90 days.
General Advice Disclaimer
General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
