Income Protection Insurance: The Definitions of Disability

Published: July 29, 2013

Income protection shouldn’t be a gamble. One of the major differences in policies is how insurers determine if someone is totally disabled at time of claim. For many years now the Australian insurance industry has been debating over which definition of disability is the best. As a result each insurer in Australia has a different definition of ‘total disability’, thus affecting the amount of benefit payment come claim time.

Which definition is the best for income protection?

There are three main definition types used in income protection policies to define total disability:

  1. Income,
  2. Hours, or
  3. Duties based definitions.

In actual fact, each definition has the potential to be the best, but it all depends on the individual claim situation.

The nature of the illness or injury will always have a profound impact on which definition provides the fairest outcome. In addition, employment circumstances may change between when someone applies for income protection and the time they claim.

For example, a change in hours worked, income earned, or duties performed. No single definition can ever be the best in all situations.

Buy Income Protection Directly

Policy Maximum Monthly Benefit Percentage of Income Covered Benefit Period Waiting Period  
NobleOak Direct Income Protection AIA
2 years or up to age 65
30 or 90 days
Receive up to 75% of your monthly income with Income Protection Insurance. Cover essential living expenses when you’re unable to work due to an illness or injury. Consider the PDS. Issuer is NobleOak Life Limited ABN 85087648708. AFSL 247302.

A new income protection insurance definition structure

Select Australian insurers have now created a new definition which incorporates the three definitions. It can offer all Australians greater assurance at time of claim.

These select insurers offer a 3-tier definition of Total Disability which takes into account income, hours or duties. This definition allows you to stop gambling with your policy.

How does this new income protection insurance definition work?

This definition removes the need to choose a single definition at time of purchase and delivers the best possible outcome at the time of claim.

Let’s look at an example of how the 3-tier definition works in various claims scenarios.

Example: Joe is a small business operator with a Pre-Disability Income of $10,000 per month, and usually works 40 hours per week.

He has injured his back, is not in gainful employment, and is following the advice of a medical practitioner.

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This new definition of total disability means that due to sickness or injury the life insured:

  • Is not working in any Gainful Occupation;
  • Is following the advice of a Medical Practitioner; and
  • Meets one of the following:
    • is unable to perform one or more of the important income-producing duties; or
    • is unable to perform the important income-producing duties for more than 10 hours per week; or
    • has suffered a reduction of 80% or more in the ability to generate monthly earnings in the life insured’s Own Occupation.

Under traditional income, hours or duty based definitions, depending on the definition chosen at time of purchase, Joe may not be assessed as totally disabled in some of these scenarios. However if Joe purchased a policy with the new 3-tier definition, it would generally be easier to make a claim.

It’s important to review what’s available and compare your insurance options to choose an income protection policy suited to your specific circumstances. 

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