What will happen to your income protection policy should you pass on?

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors
, updated on November 25th, 2021       

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Income protection policies are created to help you protect your number one asset, your income. This offers you peace of mind knowing that you will still receive a portion of your income should you sustain an illness or fall ill at home or at work. But what happens to your policy when you pass on? Here is what you need to know.

What happens to your income policy when you pass on?

Income protection policies are designed to help Australians protect their income by paying back 75% of their income in the event that they fall ill or sustain an injury that makes you temporarily disable. In the event where you pass on an income protection policy will not cover you. Although most policies do not explicitly state this fact, the policy will be terminated, due to the fact that the main beneficiary has passed on.

What are other exclusions I should be aware of?

Life insurance policies have terms that will differ from lender to lender and will also be determined on an individual basis. This is why it is vital that you read the product disclosure statement which outlines what your income protection policy offers and the exclusions that come with it. Some of the general exclusions that can prevent you from having your claim paid out are:

  • An intentional self-inflicted act
  • War, terrorism, unrest or insurgent activities in countries outside of Australia
  • Travelling to a country which the DFAT has declared as a ‘Do not travel’ area
  • Illness or injury sustained while committing a criminal offence
  • During pregnancy, giving birth, miscarrying
  • Termination of pregnancy (but you will still be covered if you sustain partial or total disability 3 months after the termination.

What other policy can I take out to protect my loved ones?

Thankfully, there is a wide range of life insurance policies that can be bundled up to protect you and your loved ones from financial instability. You can take out an income protection policy and bundle it up with life insurance or a funeral policy that will ensure that your loved ones are taken care of when you pass on. However, keep in mind that not all policies are the same. Speaking to an insurer or broker can help you compare options that are suitable for your circumstances.

How do I know I am getting the best policy?

Not all income protection policies are created equal, but doing your homework can help you find one that will adequately cover you. It is possible to get policies that cover 85% of your salary, but most policies will cover you for 75% of your income. Check your policies premiums to see if you will be getting the best value for your money.

Also, ensure that your policy will be able to cover you in terms of the occupation that you have. There are policies that are specifically designed to protect people who work in occupations where injury and illnesses are more likely to occur such as construction and nursing. Remember to always compare.