Most income protection insurance policies will have what is commonly referred to as an “Offset Clause”. The clause allows the insurer to consider and allow for income that the insured may receive – from other sources – in the event of a claim. If triggered, it will reduce the amount of the income protection insurance claim paid.
Whilst some may argue that an “offset” clause is unfair, an insurer will note that it prevents the insured from earning more whilst disabled then before they were disabled. If an insured earns more whilst disabled, there is no financial incentive for them to return to work soonest and end the claim.
The details of such a clause will differ from insurer to insurer and policy to policy and will be noted in each Policy Disclosure Statement (PDS) issued by the insurer. The clause will broadly have the effect of limiting the maximum amount the insured can receive from all sources whilst disabled, relative to what they were earning before becoming disabled.
The mechanism used for offsets by an insurer may differ depending on whether a total or partial income protection insurance claim is being paid.
Examples of what items an insurer’s PDS may allow it to offset could include (but are not limited to) sick leave payments from an employer ; ongoing business income and payments from other insurance policies. Some insurers’ offset clauses will be more restrictive than others and you should consider obtaining personal financial advice from Experien Insurance Services to understand this further.
This is general information. Contact us to obtain personal advice based on your own needs, goals and circumstances.
Always read the Product Disclosure Statement issued by an insurer before considering buying insurance. Life insurance and Financial Advice services are provided by Experien Insurance Services Pty Ltd (EIS) ABN 99 128 678 937 and Experien Financial Services Pty Ltd (EFS) ABN 32 631 346 757. EIS and EFS are a Corporate Authorised Representative (No. 320626 and No. 1274354) of Affinia Financial Advisers Limited ABN 13 085 335 397 AFSL No. 237857. See our website for our Financial Services Guide.
