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Choosing Your Preferred Income Protection Waiting Period

Russell Cain Updated: 11 November 2020

Selecting an income protection waiting period is an important step in securing your and your family’s financial future. The length of time between being unable to work because of illness or injury and receiving your income protection benefit is an agreement you make with your insurer. Your choice can impact several aspects of your policy, including the premium you pay.

This guide explains income protection waiting periods and the options available to you.

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What is a waiting period for income protection?

A waiting period in income protection is a fixed amount of time you must be off work for your policy to start ‘accumulating benefit’. Waiting periods generally vary anywhere from 14 days to 2 years. During the waiting period, you might have to rely on your sick leave if permanently employed, and/or your savings.

When you are considering income protection insurance, it is essential that you have a clear understanding of the proposed waiting periods available because it will play a significant role in your claim, and if or when you may be eligible to have benefits start to accumulate.

Why are there waiting periods for income protection?

A waiting period is part of every income protection insurance policy in Australia. It refers to the length of time the sickness or accident must keep you off work before your benefit period commences, generally for:

It’s important that the date you are unable to return to work be identified as soon as possible as it is one of the fundamental details in any income protection claim. Consult your PDS regarding the insurer’s definition of when a waiting period will start.

Income protection waiting period options

The insurer will usually give you a choice of waiting period.  In Australia, waiting period options typically include:

When will I get my first income protection payment?

Your monthly benefit generally starts at the end of your waiting period and is paid in arrears. This means you will not receive any money until one month after your waiting period has ended. For example, if you choose a 30-day waiting period, your first benefit payment will be 60 days after you were first eligible to claim.

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How long should an income protection waiting period be?

When selecting a waiting period, it is essential to understand your financial commitments such as home loans, debts, and the availability of savings. Some people also have substantial sick or annual leave that should be taken into account.

Before choosing a waiting period, you first need to consider:

Scenario 1

Frank is a self-employed plumber, and his ability to earn an income is directly linked to his ability to work. If Frank does not complete projects on a daily or weekly basis, he won’t get paid. In such a no work, no pay environment, income protection 14 day waiting period would likely be a better option for Frank.

Scenario 2

Charlene is a full-time administrative clerk and enjoys the benefits of sick leave and annual leave. If Charlene were unable to work because of an injury or illness, she will be paid during her sick leave and might even be able to use her annual leave to extend the period she needs for recovery. In Charlene’s case, she’ll likely only need income protection benefits to start when her employee leave is exhausted and a longer waiting period might be a better option.

Income protection insurance with a 2 year waiting period is generally designed for people who have other life insurance products that offer temporary disability coverage, for example, trauma insurance. 

Where can I find income protection insurance with no waiting period?

A no waiting period option for income protection is generally not available in Australia. However, there are certain features that may be included or added for an extra fee that might support you in the shorter term. For example, the Day 1 Accident Cover option provides you with a portion of your income protection benefit during your waiting period.

Day 1 Accident Cover

This option only applies if you suffer an accident, generally defined as a bodily injury directly and solely caused by a violent external and visible means and does not cover sickness. It usually provides a portion of your benefit for all of part of your waiting period if you are totally disabled due to the accident for longer than the specified amount of days, usually 3 days.

Different insurers may have different names for this additional benefit, including Day 4 Accident, Accidental Injury Option or Accident Benefit Option.

Specified Injury benefit

This built-in or optional add-on typically provides you with an advanced lump sum payment if you suffer a specified injury, which will vary from insurer to insurer. For example, a broken hand, leg or foot. This benefit is not in addition to your monthly income protection benefit but instead pays an advance minimum depending on the severity of your injury and your insurer.

How does a waiting period affect my premium?

The cost of your income protection is closely linked to your chosen waiting period. Generally, the shorter your waiting period, the more expensive your premium. A longer income protection waiting period usually results in cheaper cover.

This is because the longer your waiting period, the higher the chances that you’ll return to work without having lodged a claim, so insurance companies have less risk of paying a claim.

Does my waiting period influence my ability to claim?

Generally, the shorter your waiting period, the easier it is to meet the definition of a claim. As less severe accidents and sicknesses can keep you off work for shorter periods, such as 14 days, as opposed to 120 days.

All waiting periods are not the same. Some policies require you to be totally disabled and not work in any gainful occupation for at least the first 14 or 7 consecutive days during the waiting period to qualify for an income benefit.

Whereas other policies do not require you to be totally disabled for any number of days during the waiting period to be eligible for a partial disability benefit.

Typically, income protection policies only pay out if you have an illness or disability for a specified period. However, sometimes diseases or injuries are not continuous. If your policy requires the sickness or disability to be constant, you might be unable to claim because the period for which you have been off work was not continuous.

For example, after a car accident, you might be booked off work for 6 months due to a back injury. However, you return to work after only 3 months, against doctors’ orders. Now you have recurrent back problems, which has kept you off work for a total of 20 months. Your income protection policy may deny your claim because the period for which you have been off work was not continuous.

Each insurer’s underwriting and claims process is different. It’s essential that you carefully review your product disclosure statement (PDS) so you are aware of these circumstances.

Compare waiting period for income protection policies in Australia

Company Policy Waiting Period Options
AIA Priority Protection Vitality 14, 30, 60, 90 days, 1 or 2 years
BT Protection Plans 14, 30, 90, 180 days, 1 or 2 years
ClearView Life Solutions 14, 30, 60, 90, 180 days, 1 or 2 years
MLC Insurance with On Track 14, 30, 90 days, 1 or 2 years
OnePath OneCare Income Secure Essentials 14, 30, 60, 90, 180 days, 1 or 2 years
TAL Accelerated Protection Standard 14, 30, 60, 90, 180 days, 1 or 2 years
Zurich Wealth Protection 14, 30, 60, 90, 180 days, 1 or 2 years

Above waiting periods are from the life insurance companies latest PDS’s and based on their premier income protection policies. Please note that your type of occupation and age will have an impact on the waiting periods available to you.

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