Income Protection a la Escargot Life

Col Fullagar

14 April 2026

Financial Newswire’s life/risk specialist, Col Fullagar writes that anyone who has been directly or indirectly involved with an income protection insurance claim will be aware that insurers are big on requesting and receiving tax returns from claimants with the reasons being given as:

• It enables the insurer to check that benefit payments are being declared for tax purposes. To fail to declare would mean the claimant is not only falling foul of Australian tax laws but they are receiving benefit payments tax free which means they are likely receiving in hand more than their pre-claim post-tax earnings;
• It enables the insurer to see if there is any overt indication of personal exertion work being undertaken which could lead to the asking of further questions; and
• It facilitates a reconciliation of benefit payments being undertaken such that any unders or overs can be either clawed back or paid out.

Arguably, the complication in regard to the last is much like comedy in so far that it is all about timing.

Betty Boop is seriously well organised and gets her requisite tax documentation to her accountant on 2 July each year. By way of an aside, the writer is a Betty Boop.

Because BB’s are rare, the accountant has time available to attend to the return immediately. Betty’s return is prepared, lodged, assessed and Notice of Assessment (NOA) issued well before the month is out. Thus, if Betty was so-inclined, the return and NOA could be sent to the insurer such that, if any adjustment arising out of an over or underpayment was necessary, the matter can be addressed with minimal delay and, in regard to the former, minimal inconvenience to Betty.

Bobby Blazer is the antithesis of Betty. When it comes to tax, he puts it off and puts it off. Eventually, he ends up lodging his return on the last day it is due, 31 October. By then there is no doubt a reasonable backlog within the ATO resulting in the NOA not being sent to Bobby for several weeks.

Thus, by the time Bobby in turn sends a copy of the return and NOA to his income protection claim insurer, it could be six months or more into the new tax year. As a result, if there has been a systemic overpayment that has continued into the current fiscal year, not only will the quantum of the repayment be greater but the repayment period may need to be extended into the next tax year; both of which may result in significant financial and otherwise inconvenience for Bobby.

Whist way less likely to occur, timeliness is next to cleanliness when it comes to the correction of underpayments by the insurer as the receipt of a material and additional payment may necessitate the lodgement of a tax return adjustment. If this is found to be necessary, as they say, the sooner the better.

The moral of the story is clear, all things being equal, sooner is better than later when it comes to providing an income protection claim insurer with tax returns et al as it should in turn lead to a sooner than later identification of any benefit payment adjustment and the implementing of same.

So that’s pretty well it then; end of sermon, end of article. Hah, the reader should be so lucky !!!

You see the above is predicated on one simple assumption, when provided with requested financial information, the insurer will attend to it in a way more akin to a gazelle than an arthritic snail. And therein lies the problem.

Enter Ernie Entrée, gun Senior Clams Assessor for Escargot Life ………….

The instant 30 June gives way to a new tax year, Ernie springs into action as he writes to each of his assigned claimants and asks them to send a copy of last year’s tax returns, etc. To ensure eventual compliance, Ernie codes this to appear as an outstanding requirement on periodic letters to claimants detailing required claim proofs.

Eventually even Bobby Blazer gets it together and sends Ernie that which is requested so the necessary reconciliation can be undertaken.

Sadly, for some inexplicable reason, this is where the system lets down both Betty and Bobby in so far that the crucial mistake they, and all those who sail with them make, is they assume Ernie actually does something with the information requested and provided.

Real Life Case Study

Name and dates changed but essential facts remain

On 28 February 2025, Chris Claimant received the below email from his income protection insurer:

“In January 2020 our Forensic Accountants completed a reconciliation of all the tax returns and financial statements Mr Claimant provided us. The finalised reconciliation showed an overpayment for the 2017 financial year in the amount of $26,500.00.

 A recovery plan was proposed to gradually recoup the overpayment. Despite email exchanges at the time no agreement was reached, leaving the overpayment unresolved.

As this overpayment remains outstanding, we need a response to the recovery options within 10 days.”

In case the reader is struggling to believe the dates:

• January 2020, the insurer undertook a reconciliation of financial information relevant to the 2017 financial year
• The reconciliation revealed an alleged overpayment of benefits in the amount of $26,500.00
• The insurer provided some repayment options but there was no agreement reached with Chris Claimant
• Five years later, in February 2025, the insurer followed up and indicated it wanted a response within ten, yes ten, days.

Subsequent enquiries further found that:

• The reason no agreement regarding repayment was reached in January 2020 was because Mr Claimant advised he did not believe there had been an overpayment; and
• Between January 2020 and February 2025, the insurer had not followed up the matter.

In a nutshell, or snail shell even, the insurance company had requested and been provided with relevant financial information on a timely basis, but it had failed to review that information until, in this case, almost three years later. It then failed to follow through on the matter for a further five years during which time:

• Chris Claimant assumed his challenge of the alleged overpayment had been accepted; and
• All relevant documentation held by him had been destroyed as it was no longer necessary to retain it.

In case the reader is tempted to think this is a one-off, the writer can attest to currently being involved in two other equivalent matters, one of which is seeking a repayment of in excess of $120,000.00 going back over the last ten years.

To put the above into financial perspective, people on claim assume they are entitled to the funds paid to them. As such, funds paid are expended. If an overpayment occurs and it is found and advised in a timely manner, there will more likely exist an ability to repay same. But if the error continues for years and is allowed to grow and compound because the insurer does not undertake the necessary reconciliation, the claimant will more likely be seriously financially compromised, not to mention emotionally distressed, by the conduct of the insurer.

No doubt many would see insurer conduct such as that detailed above as neither professional nor fair but, if it does occur, it can be debated on its merit either with the insurer, with AFCA or beyond. It is not the purpose of this article to assert that one size fits all in these matters.

The takeaway for the adviser and/or the client from this article is thus not focussed on outcomes but rather prevention.

If an insurer requests information and follows up that request on a regular basis, and the claimant provides that which is requested, they should have a reasonable expectation the insurer will actually look at that which is provided in a timely way and similarly advise the outcome of any review BUT the bottom line is “YOU CANNOT AND SHOULD NOT ASSUME that which is reasonable will occur.

If information is requested and provided, it is suggested that a process is in place that ensures the insurer acts in line with that which would reasonably be expected.

By way of example, and in regard to financial information, when requested information is sent to the insurer, ask them to confirm receipt and provide a date by which they will undertake and advise the outcome of its review. Crucially, keep following up until an answer is provided or, in the alternative, a subsequent defence can be mounted if the insurer comes back at an unreasonable point in the future seeking repayment of benefits alleged to have been overpaid.

It is conceded the above is additional and what should be unnecessary work for the adviser and/or client, but it is asserted to be the lesser of two evils when compared with the time and inconvenience for both the client and the adviser arising out of a claim by an insurer for the repayment of alleged overpaid benefits sometimes going back many years.

Don’t forget …… insurers can sometimes be …… wait for it …… extremely sluggish !!

Col Fullagar is the principal of Integrity Resolutions Pty Ltd