AFCA Supports Insurer's Application of Offset Clause in Income Protection Claim

The case involved a self-employed carpenter who filed an IP claim following a motor vehicle accident in October 2024. Nippon Life Insurance accepted the claim and commenced monthly benefit payments of $3,728. However, it was later discovered that the claimant was also receiving weekly income-replacement benefits under a compulsory third party (CTP) scheme.

Upon verification of the CTP payments, the insurer recalculated the claim in accordance with the policy's 'benefits from another source' clause. This recalculation revealed an overpayment of $17,907 up to 6 September 2025. Consequently, the insurer suspended further benefits while reconciling the CTP income.

The claimant contested this decision, arguing for an annualised assessment that would account for income gaps. However, AFCA upheld the insurer's month-by-month calculation approach, affirming that both ongoing and lump-sum CTP payments must be apportioned and offset as per the policy terms.

AFCA also deemed it reasonable for the insurer to suspend benefits in May 2025 while awaiting confirmation of CTP remittances, noting that continuing payments could have increased the claimant's repayment liability. The authority declined to award compensation for non-financial loss, finding no mishandling of the claim by the insurer.

This ruling highlights several key considerations for policyholders:

• Understanding Policy Terms: It's imperative for individuals to thoroughly review and comprehend the terms and conditions of their insurance policies, particularly clauses related to offsets and benefits from other sources.
• Disclosure of Additional Benefits: Policyholders should promptly inform their insurers of any additional income or benefits received during a claim period to ensure accurate benefit calculations and avoid potential overpayments.
• Consultation with Financial Advisers: Engaging with financial advisers can provide clarity on policy terms and assist in navigating complex claim scenarios, ensuring that policyholders are well-informed and prepared.

For Australians, especially professionals and self-employed individuals who rely heavily on their income, understanding the intricacies of income protection insurance is crucial. This case serves as a reminder to proactively engage with policy details and seek professional advice to ensure comprehensive financial protection during unforeseen circumstances.

In conclusion, the AFCA's decision reinforces the necessity for policyholders to be diligent in understanding their insurance policies and transparent in their communications with insurers. Such practices not only facilitate smoother claim processes but also safeguard against potential financial complications arising from misunderstandings or non-disclosure.