Income protection lump sum payout
Rather than receive your income protection benefit as a monthly payment, you may be eligible for a lump sum payout.
Key takeaways
- Income protection pays you some of your wage if you cannot work because you get sick or injured.
- You can get income protection payouts as either a lump sum or monthly payment.
- Not all policies will let you take a lump sum - gotta check that fine print.
How does a lump sum payout work?
If you are sick or injured and unable to work for a while – or even ever again – you can breathe easy knowing your income protection policy will cover up to 85% of your income every month for a set period while you're recovering.
Depending on what your injury or illness is, some insurers offer your payout as an upfront lump sum rather than on a monthly basis until the policy expires. This can be particularly handy if you've accumulated significant medical expenses during your initial treatment.
Finder survey: What prompted Australians in different states to take out TPD insurance?
| Response | WA | VIC | SA | QLD | NSW |
|---|---|---|---|---|---|
| None of the above | 4.5% | 3.08% | 3.7% | 2.73% | 3.06% |
| Getting married | 3.6% | 1.03% | 0.91% | 0.56% | |
| Having a baby | 3.6% | 2.4% | 1.23% | 1.82% | 2.51% |
| Starting a new job | 2.7% | 1.71% | 2.47% | 3.64% | 1.95% |
| Buying a car | 0.9% | 0.34% | 0.28% | ||
| Buying a home | 0.9% | 2.74% | 3.7% | 1.82% | 2.79% |
| Retirement | 0.9% | 0.68% | 1.36% | 1.39% | |
| Starting university education | 0.9% | ||||
| Getting older (but not retiring) | 1.71% | 1.23% | 0.91% | 1.95% | |
| Starting my own business | 1.37% | 1.36% | 0.56% | ||
| Moving home | 0.68% | 0.45% | 1.11% | ||
| Your children moving out of home | 0.45% |
Source: Finder survey by Pure Profile of 1110 Australians, December 2023
Data for ACT, NT, TAS not shown due to insufficient sample size. Some other states may also be excluded for this reason.
Data for ACT, NT, TAS not shown due to insufficient sample size. Some other states may also be excluded for this reason.
How is an income protection lump sum settlement determined?
A lump sum payout isn't available for all types of illness or injury. For example, you can't take a few months off work for a broken leg and expect to get a lump sum paid out. Generally speaking, a lump sum benefit is available if you become totally and permanently disabled. Each insurer has its own criteria that must be met to be considered for a lump sum payout under total and permanent disability (TPD).
Conditions that are commonly covered by a lump sum benefit include cancer, stroke or quadriplegia, among others. Be sure to have a look in the insurer's product disclosure statement (PDS) for an exact list of qualifying events and medical definitions, as often you'll be eligible for a lump sum payout if your condition fits those pre-determined in the PDS.
To be eligible for a lump sum payout, you'll usually need to be medically certified that you are totally and permanently disabled. This means your doctor has decided you're unable to return to the workforce due to your condition.
Once your doctor has given you TPD certification, the lump sum settlement is usually determined as follows:
- Get all the info you'll need for your TPD claim:
- Insurance policy details
- Date of last day actively worked (LDAW)
- Date of initial consult with your doctor regarding the condition
- Employment contact details
- Contact your insurer to let it know you need to make a claim. It will send you all the paperwork you'll need to complete for your claim and answer any questions you may have.
- Submit your claim form and any required documentation.
- Wait for the outcome.
Lump sum vs monthly payout
If you don't choose a lump sum payout, you can receive your benefit on a monthly basis for a specified period. If you've met the criteria for a lump sum payout, generally you'll be eligible to receive the monthly benefit up until age 65 (depending on your insurer and policy).
Pros of lump sum payouts
- Money available upfront to cover significant medical expenses incurred.
- Peace of mind. The money has been paid in a lump sum, so you know it's all there available for use as needed.
- Provides choice. A lump sum gives you the freedom to spend it as you wish. It could be used to pay down debt or medical expenses, with the freedom to spend any remaining amount as you choose.
Cons of lump sum payouts
- A lump sum may exhaust your policy. If you take a lump sum, you may not be eligible for any further benefit under this policy.
- Money needs appropriate management. Managing a large sum of money may require some degree of financial planning or budgeting.
- Taxed at your marginal tax rate. If your lump sum payout pushes you into a higher tax bracket, you could end up losing a significant portion due to tax.
Which income protection offers a lump sum payout?
Here is a list of insurers that offer the option of a lump sum payout:
| Brand | Offers lump sum payout? | Apply |
|---|---|---|
 | More info | |
 | Get quote | |
 | Optional | More info |
 | Get quote | |
 | Get quote | |
 | More info |
It's wise to always read the PDS before deciding on the right policy for you as each product varies slightly.
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