Regular ongoing payments made to the insured, typically from income protection insurance, to replace lost income during illness or injury. Monthly benefits continue for the benefit period specified in the policy.
A monthly benefit is the recurring payment under an income protection policy while you cannot work due to illness or injury. It typically replaces around 75% of your pre-disability gross income.
The 75% cap exists because benefits are taxed as ordinary income, so 75% of gross income roughly equals your take-home pay after tax.
| Parameter | Typical range | Notes | |---|---|---| | Replacement ratio | Up to 75% of gross income | Some policies allow 80% with a 5% super top-up | | Waiting period | 14, 30, 60, or 90 days | Premium decreases as the waiting period lengthens | | Benefit period | 2 years, 5 years, to age 65 or 70 | To-age-65 cover costs more but pays longer | | Indexation | CPI-linked while on claim | Maintains real value during long disabilities |
Monthly benefits protect against the risk of exhausting a lump sum before you recover. Long-tail conditions (cancer recovery, mental health, musculoskeletal injuries) can last years. A monthly stream matches the ongoing nature of living expenses.
Monthly benefits are taxable as ordinary income. Premiums are deductible (see Tax Deductible Premium). The deductible-premiums-and-taxable-benefits structure is anchored in Taxation Ruling TR 2003/7.
Rachel earns $90,000 annually and has income protection covering 75% of her income with a 30-day waiting period. After a car accident, she's off work for 8 months. After the waiting period, she receives $5,625 per month ($67,500 gross for 12 months), less tax at her marginal rate.
Mark, a tradesman earning $75,000 per year, has a monthly benefit of $4,688 (75% of gross). He pays $1,100 annually in premiums, which he claims as a tax deduction. When injured, his monthly benefits are taxed as income, netting approximately $3,750 after tax.
Lisa's income protection policy pays her $7,000 per month (based on her $112,000 salary) for 2 years while she recovers from surgery. The total benefit paid is $168,000, all of which is added to her taxable income across those years.
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