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Will lease protection insurance work for you?

Lease protection insurance is taken out when you buy your vehicle through a novated lease. Its primary objective is to protect you in the event of involuntary unemployment or an accident that renders you incapable of performing your nominated occupation.

In the event of involuntary unemployment the policy will generally:

  • pay the monthly lease payment for the first three months of unemployment, at which point you return the vehicle and take advantage of a handback option; or
  • continue to claim for a maximum of six months’ lease payments.

In the event of sickness and accident, the cover is generally:

  • paid for up to 18 months, at which point the hand back option can be exercised; or
  • continue for a maximum of 24 months.

The handback option sees the vehicle being sold and the loss covered by the insurer. This is capped at a maximum loss level of around $25,000, and $50,000 for sickness. This gives you the peace of mind of knowing that in the event of involuntary unemployment, you can protect yourself.

Now here’s the fine print…

To show involuntary unemployment you must:

  1. Register your involuntary unemployment with Centrelink.
  2. Provide sufficient evidence of your involuntary unemployment.
  3. Be actively seeking new and permanent gainful employment.

Importantly, thefirst day of your unemployment will be taken as the first day that your claim would have been payable.

What about a restraint of trade?

If you have a restraint of trade, which prohibits you from working for a competitor or in a similar role, you will be required to register as a jobseeker for alternative work not in breach of your employment agreement. This may be hard, given that you have a specific area of expertise. If you are not able to provide proof of registering, you will firefight your claim and the policy will be of no use to you.

What about Centrelink?

Some people don’t want to register with Centrelink and would prefer to seek alternative employment. If you are one of these individuals, this policy will not be of assistance to you.

What about a breach of duty?

If your unemployment is due to a breach by you of your employment obligations, then there is no cover. This is important if your employer terminates your employment claiming a breach of employment terms. Even if you are fighting the termination, the cover period is the first three months, extending to six months. Once again, no cover.

It is important to be aware of the insurance you are taking when using a novate lease.

Pay@bility provides benefit administration services and was founded to deliver Australia’s first employee self-service model for salary packaging. Novate@bility is a division of Pay@bility.

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