Monthly Benefit
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.
Detailed Explanation
Common Misconceptions
- •Monthly benefits replace 100% of income - they typically replace 75% of gross income due to tax treatment and incentive to return to work
- •Benefits start immediately after disability - a waiting period (often 30-90 days) applies before payments begin
- •Monthly benefits are tax-free like lump sum benefits - they're taxable as ordinary income
Real-World Examples
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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Related Terms
Explore related insurance concepts
- Income Protection InsuranceIncome protection insurance replaces up to 75% of your income through regular monthly payments if you can't work due to illness or injury. It covers temporary disabilities with benefit periods from 2 years to age 65, helping maintain your living standards while you recover.
- Waiting PeriodThe specified time period at the start of a policy or from the date of disability during which benefits do not pay despite valid claim circumstances. Waiting periods serve different purposes: initial waiting periods prevent immediate claims after purchase (anti-selection), while income protection waiting periods allow short-term sick leave before benefit commencement.
- Tax Deductible PremiumAn insurance premium that can be claimed as a tax deduction, reducing your taxable income. In Australia, income protection insurance premiums are generally tax deductible, while life, TPD, and trauma insurance premiums typically are not.
- Lump Sum BenefitA one-time payment of the full insured amount, typically paid for life insurance, TPD insurance, and trauma insurance. Unlike monthly benefits, lump sum benefits provide immediate access to the entire benefit amount.