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

The case involved a self-employed carpenter who, following a motor vehicle accident in October 2024, began receiving monthly IP benefits of $3,728 from Nippon Life. Subsequently, it was discovered that the claimant was also receiving weekly income-replacement benefits under a compulsory third party (CTP) scheme. Upon verification, Nippon Life recalculated the claim in accordance with the policy's 'benefits from another source' clause, determining an overpayment of $17,907 up to 6 September 2025.

AFCA upheld the insurer's application of the offset clause, confirming the overpayment and supporting the suspension of benefits while the CTP income was reconciled. The authority found that Nippon Life had correctly applied the policy terms and that suspending benefits during the verification process was reasonable to prevent further overpayment.

This ruling highlights the necessity for policyholders to thoroughly understand their insurance policies, particularly clauses related to benefits from other sources. Such clauses are designed to prevent overcompensation and ensure that the total benefits received do not exceed the policyholder's pre-disability income. Policyholders should be aware that receiving multiple benefits from different sources can impact the amount payable under their IP policy.

For individuals holding income protection insurance, this case serves as a reminder to:

• Review and understand all policy terms and conditions, especially those concerning offsets and benefits from other sources.
• Promptly inform their insurer of any additional income received from other sources during the claim period.
• Seek clarification from their insurer or a financial adviser if uncertain about how other benefits may affect their IP payments.

By maintaining clear communication with insurers and having a comprehensive understanding of policy terms, policyholders can better navigate the claims process and avoid potential disputes or overpayment situations.