Q. As part of my salary package, I have Temporary Salary Continuance insurance provided with a  2 year benefit period in the event of disability.  I also have generous death and Total and Permanent Disability Cover. My financial adviser has recommended I take out additional Income Protection cover that has a 2-year waiting period but with a benefit until age 65.  Can you explain why I would need this cover?  Surely if I have been off work for two years due to sickness or accident, I would satisfy Total Disability?  I am 46 years old.

A. Temporary Salary Continuance (TSC) typically covers 75% of your income for the period of time that you are totally disabled. To satisfy a claim you usually need to be totally disabled and incapable of performing your usual occupation during the waiting period and during the time of claim.

The waiting period is effectively an insurance excess as it is the length of time you need to be disabled prior to satisfying the conditions to claim.  Typically with employer funded TSC cover, the waiting period is 90 days but this may vary between 30 days up to two years. So please confirm your current waiting period.

Under your current policy, you are covered for up to 2 years of total disability from the time a claim is admitted.  After the two year claim period has elapsed, the claim would stop. Note income benefits received are taxable income to you.

Total and Permanent Disability (TPD) insurance pays a lump sum to you becoming permanently incapacitated.  There are typically two TPD occupation definitions; “any occupation” and “own occupation”.  “Any occupation” definition is the most commonly used definition in the market. For a claim to be admitted under “any occupation” definition, you are typically obliged to have been disabled for at least 6 months.  You will need to be assessed by two independent Doctors (approved by the insurer) and deemed incapable of returning to work in any capacity ever again.  TPD insurance entered into under Superannuation from 1 July 2014 was obliged to use this definition.

An “own occupation” definition for TPD typically still requires you to satisfy a qualification period of at least 6 months of disability and assessment by 2 independent Doctors (approved by the insurer), however, the capacity criteria are based upon whether you can ever return to work in the same occupation that you currently work.  This definition would be easier to satisfy.

Superannuation TPD benefits may be subject to tax.  The tax will vary depending on whether a TPD benefit is taken as a lump sum or as an income stream.

The purpose of recommending top up Salary Insurance is to protect you and your family long-term in the event that you do not satisfy either definition of TPD.

Review your insurable needs; both lump sum and ongoing income replacement.  Check your waiting period for your salary continuance and check which occupation definition applies for your TPD cover. Seek advice on the impact of tax on your benefits; either as an income stream or as a lump sum.

The recommendation of a top up Income Protection policy with a two-year waiting benefit with a benefit to age 65 is a prudent measure to protect you and your family long term in the event of total but not permanent incapacity.