What is a Continuence of Pay
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Salary continuance insurance offers you some protection against loss of income if you're unable to continue working. It's similar to income protection insurance, but it's not exactly the same. Let's take a look.
Salary continuance insurance provides financial help if you're unable to work due to sudden illness or injury. It's held within a super fund, and you'll pay your insurance premiums from your super balance rather than directly from your bank account. This means that if you make a claim, benefits are paid into your super fund before being released to you.
Some employers offer group salary continuance insurance to their employees. However, it's not tax-deductible and is usually only payable for 2 years, unlike other income protection.
Salary continuance insurance can typically cover the following injuries and accidents:
- Full, permanent disability. If you become permanently disabled, policies will usually pay out 100% of the total monthly benefits for the full benefit period (usually 2 years).
- Partial disability. This means you can still do some work but can't earn as much as you used to because of the disability. In this case, you may only be paid a percentage of the monthly benefit amount. The exact amount will depend on the situation and how much less you're earning. You can generally keep claiming partial disability for the full benefit period or until you no longer qualify as partially disabled.
- Death. If you die while claiming salary continuation benefits, a policy might pay out several months of benefits in a lump sum to your estate through your superannuation fund.
- Recurring disability. If you suffer a recurrence of the same disability that entitled you to a previous claim, it will count as the same injury, and the waiting periods will be waived.
- Specific injuries. Suppose you suffer any one of the specific injuries laid out in your policy and are still suffering from this injury after the end of the waiting period. In that case, you may be paid monthly benefits depending on what kind of injury it is. For example, a salary continuance policy might pay the full monthly benefits for 3 months in the event of a fractured pelvis, 24 months for total blindness or 60 months for the total loss of multiple limbs.
Types of salary continuance
The 2 main types of salary continuance insurance are:
- Permanent. In the event of total permanent disablement, policies will typically pay out 100% of the total monthly benefits for the full benefit period. Total and permanent disability means being unable to work any job with no signs of recovery.
- Temporary. Salary continuance cover will only pay you for a specific period of time, unlike income protection, which usually stops at 65. The total maximum amount of time the policy can pay out for is known as the benefit period. This is typically for 2 years after the end of the waiting period but may vary depending on the policy. The benefit period is the maximum amount of time you can get benefit payments, even if you're still disabled and unable to work after that.
You can choose whether to take out different types of life insurance under a single policy or purchase standalone policies. If you choose to take out standalone policies, you will need to let each insurer know that you have multiple life insurance policies that are active.
Choosing a waiting period
With most policies, you can choose a waiting period of 30, 60 or 90 days. This is the time you'll need to wait from the moment you fall ill or incur an injury to the point when you start to receive salary insurance benefits. During the interim period, you'll need to rely on your own savings and any sick leave pay to cover your daily expenses.
📌 Keep in mind: It can take longer than your chosen waiting period to settle your claim. In this case, your benefit will be paid in arrears from the end date of your waiting period.
Deciding a benefit period
A benefit period is how long you'll receive payments for when you make a claim. Most salary continuance policies have a standard benefit period of 2 years. This means you can receive 24 monthly payments in total, usually at 75% of your income. However, this payment will stop at the end of the benefit period, even if you're still unable to work. Sometimes, you can opt for a longer benefit period if you choose to pay a higher insurance premium.
📌 Keep in mind: Most salary continuance insurance providers won't pay out when you reach the age of 60 or 65.
The cost of salary continuance insurance is affected by several factors, including your:
- Age
- Gender
- Occupation
- Waiting period
- Benefit period
- Cover amount
You won't have to pay for the premiums out of your bank account though, monthly payments are taken out of your superannuation balance. This means it will reduce the amount you have in your super for retirement.
We gathered quotes from 2 salary continuance insurers in Australia to help you understand how much getting cover could cost you. Costs are based on a benefit period of 2 years, with a 60 day waiting period. Quotes were taken in August 2021 and are subject to change.
| Provider | 25-29 Male/Female | 30-39 Male/Female | 40-49 Male/Female | 50-59 Male/Female | 60-65 Male/Female |
|---|---|---|---|---|---|
| AustralianSuper | $3.15 | $6.33 | $10.47 | $13.71 | $17.74 |
| Aspect | $24.87 | $26.49 | $38.98 | $77.85 | $159.73 |
| Average Cost | $14.01 | $16.41 | $24.72 | $45.78 | $88.73 |
Group salary continuance insurance provides the same benefits as salary continuance insurance. It pays out a monthly benefit of up to 75% of your income when you're unable to work due to illness, accident or injury.
You can only receive group salary continuance insurance if your employee offers it as a benefit of your employment or if you're a member of a group super fund.
| Benefits | Drawbacks |
|---|---|
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Pros and cons of salary continuance insurance
Still not sure if it's for you? Check out the pros and cons:
Pros
- Convenient if you have just entered the workforce.
- Premiums are paid from your super so that they won't affect your everyday cash flow.
- You won't always have to go through a health check to be covered.
- Tend to be cheaper as the policies are purchased in bulk by employer.
Cons
- Premiums are not tax-deductible.
- Most companies will only allocate a 2-year benefit period. This may not be long enough to cover your recovery period.
- Premiums are paid through your super fund. This will eat into your retirement savings but won't affect your daily cash flow.
- If you're covered under a salary continuance group policy, your cover will stop when you leave your job.
- You may experience delays in receiving payment. The insurer pays the benefit into your super and then it will be paid out to you.
- If your super contributions stop, your super falls below $6,000, or you change funds, your insurance might stop too.
- Claiming can be complicated, especially if you don't have a nominated beneficiary.
✅ Yes. As is the case with multiple income protection policies, you can take out more than 1 salary continuance insurance policy. However, this doesn't mean that you'll receive a higher benefit payment each month.
Why not? Regardless of how many salary continuance insurance policies you take out, your monthly benefit will always be capped at 75% of your salary. This is to ensure that there is an incentive for you to want to return to full-time work when you have fully recovered.
It's not uncommon to:
1. Take out a policy to cover the immediate first 2 years of injury or illness.
2. Combine this with a different policy that specifies a 2 year waiting period.
Important to note: You'll need to let both insurers know that you're taking out 2 policies and be prepared to pay more than 1 premium each month.
Salary continuance insurance and income protection both ensure you won't lose all of your monthly income if an illness or injury forces you out of work. However, the main difference between the 2 is how you get them.
You can receive income protection as an individual or through group insurance via your superannuation fund. On the contrary, salary continuance insurance is only available through your super, usually via your employer.
💡Understand better: One of the most important differences between salary continuance insurance and income protection is that you usually have more control when you take out individual income protection. You won't have to worry about losing cover when you move jobs, and you'll have more customisation options with individual policies. However, it can be more expensive, and you'll need to pay the premiums directly from your bank account rather than your super.
Or if you'd prefer, speak to a specialist today
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Source: https://www.finder.com.au/salary-continuance-insurance-faq
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