Income Protection/Total and Permanent Disability Insurance

CheapSticks on 09/07/2025 - 22:38
Last edited 10/07/2025 - 11:12 by 1 other user

Hi guys - I had insurance taken out privately via a retail policy that covered life/TPD/Income Protection.

My employer has got group cover which provides life and income protection. The life cover is almost double I had in my retail policy.

The Income Protection is also almost double the amount I had in my retail policy.

I am intending to cancel my life cover as I think corporate group cover is pretty good and it's sort of a binary event and less confusion around cover eligibility etc vs injury/disability etc

My question is around Income Protection. The income protection offered by my corporate offers cover under "my own occupation" for 2yrs and then it reverts to "any occupation" to 65yrs. My retail policy is "own occupation" up to age 65 and hence is pretty expensive. I wonder if I should cancel my retail policy and save some serious $$$.

My insurance agent advises me to not cancel the retail policy as apparently it is one of the best policies and not available anymore in the market and provides own occupation cover till 65 so less ambiguity for payout. I would like to hear from other people who have been in similar situation or people experienced in this matter as to what is the course of action.

If I cancel the IP policy, I will save like $3k per annum.

Financial Insurance

Comments

  • Ponsonby on 09/07/2025 - 23:39

    The retail policy premiums will be tax deductible so net cost to you is less than $3k. Your agent is right - own occupation to age 65 is a very valuable feature. So think twice before cancelling.
    Also look at the terms of the group policy as to how they deal with pre existing conditions. This may not be a problem but if the group policy excludes cover for health conditions that existed before you joined, your coverage will be less than under the retail policy.

    • CheapSticks on 12/07/2025 - 14:40

      thanks. I checked the group policy and it hasnt got any exclusions for existing and i went through medical test and it came out fine for underwriting.

  • p1 ama on 10/07/2025 - 00:51
    +9

    I'm an actuary, but don't work in insurance, so can probably give a bit of an unbiased insider's insight.

    The world of life (and associated) insurance is very much riddled with scams. Several reasons for this - large variations in products leads to confusion, frictions involved with getting a quote / switching (as you would with car insurance, for example), sold by insurance agents who are getting a kickback but often portray themselves as independent, exploitation of people's fears, doubling up of coverage with what's already in a group policy or in their superannuation…etc.

    There's also a tendency for over-coverage, as it's a type of insurance with (practically) binary payouts (unlike, for example, car insurance) with very, very low probabilities. I explain the basic mathematics in another post (see: https://www.ozbargain.com.au/comment/16598917/redir), but in basic terms, you're paying a lot of money for something that you are most likely not going to claim. Some folks I know who work as actuaries for major life insurers tell me that around 99.5%+ of policies do not pay out. It's difficult to come by data on this, but this US-based study (https://www.thezebra.com/resources/research/life-insurance-s…) claims that figure is 99%.

    I know you're looking at IP, not life, but the broad ideas are similar. You're paying money for something where you're 99%+ not going to claim on it.

    The difficulty with trying to help people make a judgement on whether life (or IP) products are "worth it" is that if you tell people they probably don't need it, there's a part of you that feels bad for potentially leaving their family in the dry if they are in that 1%. However, it's worth remembering that $3k p.a. is a lot of money - if you're looking out for your family, you could put that money aside into an investment that one day they can take over.

    My insurance agent advises me to not cancel the retail policy as apparently it is one of the best policy and not avlble any more in the market and provides own occupation cover till 65 so less ambiguity for payout.

    My only advice is to treat him as you would a car salesman. They will always tell you that what they are selling you is the best, that it's limited, that you're never going to be able to get it again. Treat it all with a grain of salt. Insurance agents make themselves out to be looking out for your best interests, but they are being paid by insurance companies, either through profit share or even sometimes, equity ownership arrangements. I talk about that more here: https://www.ozbargain.com.au/comment/16598917/redir.

    You shouldn't take my word for it, put what he's saying to the test - contact a new insurance agent and tell them that you're interested in XYZ product (with similar characteristics to yours) and see if it's really "not available on the market" anymore.

    FWIW, it's also worth thinking about what IP will actually do for you - it's highly job dependent. As an example, a software engineer and a builder are going to have very different definitions of injuries that take them out of work permanently and completely. Also worth thinking about what activities you partake in which may be considered risky. Some people go skydiving every second weekend, some have terrible diets, some are fitness freaks, some never venture beyond very "safe" hobbies and activities.

    Anyway, not trying to offer you advice (as that's impossible without knowing your situation). However, hope I've given you some food for thought and guidance on how to come to your own decision on this.

    • CheapSticks on 10/07/2025 - 04:43
      +1

      Thank you so much for your detailed response. Very very helpful.

      I totally agree and understand that the agent is looking after himself. With corporate cover, my life insurance went 3x and he was telling me I am not over insured. I hv been reducing my life cover as I hv been gradually paying out my liabilities. So cancelling life cover on retail policy is no brainer as I am still cover for 2x and life is binary

      TPD and IP can become bit complicated to understand as there are product subtleties / exclusions / limitations that require understanding of product otherwise you are paying for nothing. I decided to cancel my TPD as I do not need lumpsum anymore if my IP cover is strong n kicks in on temporary or permanent disability.

      I work in finance ( desk front office) and cycle fair bit. Hence thought of IP that can kick in if I end up in disability realm. The group policy provides for 2yr own occupation but after that it is any occupation to 65. I assume that it means if my mental faculties are working and I can do some form of paid work perhaps for lesser hour then payout may stop after 2yrs. And that makes me uncomfortable

      • V2L on 10/07/2025 - 09:13

        interestingly you rarely will have a claim paid to 65 - in most claims you either get better or you die within 5 years (think cancer, neurodegenerative disease) at which point your Life will kick in. the reason why premiums have been skyrocketing is a large number of mental health claims which have almost bankrupted the industry leading to the changes we've had recently

        • CheapSticks on 12/07/2025 - 14:45

          Understand. My neighbour had a stroke and is now bed ridden (half paralysed) with long road to recovery. Luckily his kids are grown up and working so wife can look after husband but still need money and actually more money.

  • Muppet Detector on 10/07/2025 - 04:36

    Why don't you like the advice that your insurance agent gave you?

    • Wiadro on 10/07/2025 - 06:30
      +3

      Because life insurance is 90% a scam. The agent is just trying to make his commission.

    • CheapSticks on 10/07/2025 - 06:49

      Primarily bcoz my life insurance went up 3x and he tells me I am not over insured. This makes it challenging to accept his advice on IP insurance

  • V2L on 10/07/2025 - 09:04
    +1

    I have TPD/Life topped up inside super and IP outside of super. (some caveats on a payout as subject to tax clawback but since it's not tax deductible, paying from super is good for cashflow). personally I plan to keep it until 45 or so or when I'm close to paying off mortgage. I wouldn't buy TPD outside of super, you are doubling up with IP which is tax deductible, if you really want extra security you can add on trauma insurance (which doesn't have much to do with trauma as the name may suggest).

    your broker regardless of their own interest is right in the sense that own occupation to 65 is no longer offered. Is your premium stepped or level? it's very well to say insurance is a scam that you won't need 99% of the time - which is the definition of insurance. the question is can you afford not to be insured - what's your back up plan and how far are you away from self insurance where your sick leave/savings can keep you / your family afloat in a catastrophe? the old adage of 'put the money away for a rainy day fund instead' doesn't work if you are in your 30s with young children which is when you need insurance the most. the premium is money for peace of mind so you don't have to make a 'go-fund-me' if things go south. I've seen friends from high income family >500k pa run into financial trouble due to major illnesses and needed help from family/friends.

    • CheapSticks on 12/07/2025 - 14:48

      My premium is stepped and i chose it bcoz i intended to reduce the cover as i age and hv reduced liabilities. I do need the IP and life cover as my kids are still in primary

  • SmiTTy on 10/07/2025 - 10:03
    +1

    1) find out if you can upgrade your corporate policy. That would mean reaching out to the insurance provider and upgrading directly. I dont know if it's possible - just a suggestion. In my company, I know we can take over the policy with the same benefits when we leave the company but I've not tried to modify it during my employment.

    2) you could ask your retail to start paying out only after 2 years (2 year wait period) . So your corporate policy wil cover first 2 years of your own occupation, then your retail will take over from year 2. That would bring down the cost

    I'm not sure if both suggestions are possible with the changes to IP. Just a suggestion to explore, but apologise if above is irrelevant!

    • CheapSticks on 11/07/2025 - 11:36

      That’s a great suggestion to commence retail IP after 2yrs

  • clover on 10/07/2025 - 20:47

    Can you still retain the IP cover if you switch employer? If not, think of the costs and hassle to get back the policy.

    • CheapSticks on 12/07/2025 - 14:49

      yes i can - there is a continuation provision. thank you that was a good question and i checked the document.

      • mrtin on 12/07/2025 - 16:47

        The employer one is probably not guaranteed renewable. The retail one probably is

  • mrtin on 11/07/2025 - 20:34
    +1

    I note you are using an "insurance agent". You have to understand they only make money selling you policies, unless they charge a fee (for something).
    I'm biased, but you should consider getting actual financial advice. The right adviser will be able to advise you how to structure your policies, which one to keep, which to replace, or maybe, a combination is better. They can provide a comparison or advise why one is better than another.
    Some advisers will be able to dial down commissions to zero, making premiums significantly lower. Obviously, you will then have to pay an advice fee.
    Finding the right adviser can help you.

    I see that you likely have a grandfathered ip policy as well. These policies differ to current policies-generally better definitions. You should really seek proper advice.

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