What is Income Protection Insurance?
What is income protection insurance?
An income protection insurance policy is used to guarantee a proportion of an individual’s income in the event that they are temporarily unable to work due to illness or injury. In Australia the maximum you can cover is generally 75% of your total income.
Why do I need income protection insurance?
No one plans to get sick or injured, but we all know it can happen. If you do happen to suffer this misfortune the last thing you want to be worrying about is how you will pay bills or buy the groceries. Taking out an income protection policy is like installing a safety net that gives you a guaranteed steady income to fall back on in the event that you are unable to work.
What are the benefits of income protection insurance?
The primary benefit of having an income protection policy is the reassurance of knowing that you have a guaranteed income stream to fall back on in the event of illness or injury preventing you from working. Individual income protection policies may also include other benefits such as retraining assistance, rehabilitation coverage, and premiums are often tax deductible.
What types of income protection insurance are there?
There are two main types of income protection insurance:
- Indemnity Value: The most common option and generally cheaper premiums. Based on your income at the time of making a claim and can be affected by income fluctuations. This is most suitable for people with a steady, reliable income.
- Agreed Value: This is generally the most expensive option, as it pays out a benefit based on an agreed income and is not affected by changes in income. This is often suitable for people whose income varies such as the self employed. Income protection insurance is also sometimes offered through superannuation funds, and generally these will be indemnity value policies and may offer less flexibility or fewer features.
What is an income protection insurance waiting period?
This refers to how long you can be off work before requiring the income protection insurance benefits to commence. Generally, these waiting periods range from two weeks up to two years. A shorter waiting period will increase the price of the premium.
What is an income protection insurance benefit period?
The benefit period sets out the maximum length of time that the benefit will be paid. This can either be a set period such as two years, or up until a certain age such as 65. A longer benefit period will push the price of the premium higher.
How much income protection insurance cover do I need?
When considering what level of income protection insurance you will need it is important to consider how much money you would need to cover both your fixed and variable costs during your recovery. Fixed costs may include mortgage payments or rent, car repayments, school fees, and so on. Variable fees will include grocery shopping, utilities bills, household running costs, and your medical bills. The maximum level of income protection insurance in Australia is usually 75% of your total income. It is important to ensure that your level of income protection insurance will provide adequate income if required.
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The content of this guide is of a general nature and does not constitute financial advice. It is provided for general information purposes only and you should seek your own independent, professional advice when considering insurance products.