Comparing Income Protection Insurance with Salary Continuance Insurance
Income Protection insurance is the more common name for this particular life insurance product. When it is held within a superannuation account, is sometimes referred to as Salary Continuance insurance. In the latter case there are often different definitions that apply. Because of legislative circumstances, claims need to be processed through the superannuation trustee. They communicate with the insurer, collect any claim proceeds, and pass them on if eligible.
Why do we need to compare these two lines of income replacement insurance?
Income replacement insurance is a strategy to protect the first line of wealth accumulation and preserve lifestyle. Income-earners have these products available that will substantially replace their income in qualifying circumstances. Specifically, these include being unable to continue to undertake productive work because of certain incapacities or disabilities.
The two most broadly applicable products are Income Protection (IP) Insurance and Salary Continuance (SC) Insurance. IP Insurance is available to anyone deriving personal exertion income. SC Insurance is available more broadly, to a spectrum of employees as members of particular superannuation funds. There is a considerable overlap of people eligible for either of the two products. Deciding which one is most appropriate in any individual circumstance, is the question we seek to guide you to resolve.
What are the main differences between these two policy types?
There are a number of differences between the two types of insurance policy. They provide financial protection in the form of income replacement benefit payable on a monthly basis – but there are differences. The following table details a number of those differences:
|
Salary Continuance Insurance |
Income Protection Insurance |
Access to cover |
This form of income replacement insurance is only available within a superannuation account. If you do not have a super account, salary continuance insurance will not be available to you. | Most commonly owned as a stand-alone income replacement policy. Options exist to have ‘limited’ cover inside your super fund with premium payments being drawn from that account. |
Claims definition(s) |
The definition of an inability to continue to earn income that renders a claim eligible is limited. The definition is commonly referred to as ‘any occupation’.
(^see generic definitions below this Table.) The trustee of the fund offering this product has control of the definition applicable to the cover offered. This applies to existing policies as well as to new cover. |
What constitutes an inability to continue to earn income and be eligible to claim under the policy is defined. You can choose between an ‘any occupation’ or an ‘own occupation’ definition.
(^see generic definitions below this Table.) Only the insurer can vary the definition terms once the contract is in place. Changed definitions of this type have to have the consent of the insured person. |
Medical exam requirement |
Neither blood tests, medical examinations nor completion of personal health statements is required for this type of cover. | At the discretion of the proposed insurer, particular health information may be required. Completion of a personal health statement, and undertaking blood tests and medical exams are not uncommon. The cost of these will be met by the insurer. |
Conditions of cover |
Features and benefits of this type of policy are limited by comparison with the IP Insurance policy. They are sometimes referred to as ‘vanilla protection’ policies. | A broad range of features and benefits may be available within various occupation code constraints. Where available, they can be tailored to individual needs and preferences. |
Assistance if ‘between income roles’ |
Salary continuance insurance does not provide coverage for involuntary unemployment. Indeed it is at risk of being cancelled if there is a period on non-contribution to the super account. | Income protection insurance does not provide a benefit in an involuntary unemployment situation. Some insurers may provide a level of ‘assistance’ by freezing your cover or waiving your premiums at those times. Even if co-held within super, the cover may be able to continue in spite of the absence of ‘current’ contributions. |
Benefit period |
Some salary continuance insurance providers only provide benefit payments for a maximum term of two years. | Most income protection insurance policies offer benefit period options allowing the insured to choose one that is most suits them. These options range with cover offerings from 2 to 5 years, or up until the age of 65. In some recent offerings, cover beyond that age is available. |
Premium rates |
Because the companies offering salary continuance insurance provide the cover either through group arrangements, the premiums may be lower. This reflects the broader base of lives covered – and the volume of the business involved. | Income protection insurance premiums are likely to cost more. They provide more comprehensive cover through a wide range of features and additional options. Consumers can tailor the policy inclusions to suit individual circumstances. |
Future insurability |
If cover is provided under group salary continuance insurance through your employer, it will cease if you change your employer. Cover will continue provided that premium payments are met by the sponsoring employer. | Provided premium payments are paid under the terms of the policy, your insurance will remain in force. This will be the case regardless of any changes in your health or employment status. |
Premium type |
Salary continuance insurance is only issued under conditions of a stepped premium. In this situation, the annual cost of cover increases with the age of the insured. With ‘default cover’ the amount of the cover provided will also impact the premium. | Income protection insurance within superannuation is only available with stepped premium conditions. However, any such insurance outside of superannuation may be able to be taken on what is termed level premiums.
(Level premiums provide a constant level of cover at a premium cost that is unchanged relative to the cover provided.) |
^Under the ‘Any Occupation’ definition, a claim will generally be paid if you’re unlikely to be able to work in any occupation that you are suited to by education, training or experience. ‘Own Occupation’ eligibility is satisfied when you’re unlikely to be able to perform key tasks in your current occupation.
Can I upgrade from Salary Continuance to Income Protection insurance at any time?
Whilst there may be some impediments to such a change with some employer arrangements (and in some occupation types), generally speaking it should be possible to replace Salary Continuance (SC) with Income Protection (IP) insurance. However, this will not be a transfer of the cover from the SC to IP, a new application and policy will be required. Dependent on the state of your health, an IP policy may not be available: accordingly it is always prudent to leave existing protective policies in place until the new cover is fully accepted.
In certain circumstances a more suitable solution may be to supplement the existing, low- or no-cost SC policy with an IP policy with which options have been selected to optimise the benefits of each of the policies.
When considering insurance within Super, the advice provided in the MoneySmart website on this topic is also helpful: it is linked here.
Trusted advice about income replacement insurance –
Income replacement insurance offered in either Salary Continuance or Income Protection policies is a key element of wealth management strategies used to provide financial security and certainty for the accumulation phase of financial planning. In this context it is important to consider all relevant personal circumstances: and at Continuum Financial Planners Pty Ltd, we work to the mantra that – ‘we listen, we understand; and we have solutions’ to your personal and specific needs, that we deliver in personalised, professional wealth management advice.
To ensure that your best interests are provided for in these matters, contact our office (by phone to 07-34213456) or directly Book A Meeting with one of our advisers.
Further information regarding income replacement insurance policies:
The Continuum Financial Planners Pty Ltd website carries a Library of articles on financial planning related topics: the Risk Insurance Strategies category in that Library includes the following articles relevant to this type of insurance –
- TPD and IP Insurance Definitions make a Difference
- Life Insurance and Superannuation linked
- Income Protection Insurance – some questions answered
- Why Income Protection?
- Income Protection and Salary Continuance Insurance
Originally published in November 2014, this post has occasionally been refreshed/ updated, most recently in July 2024.
