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Unfortunately, life doesn’t always go according to plan. If an accident or illness interrupts your ability to work, income protection insurance can help tide you over until you get back on your feet.
While workers’ compensation covers accidents that happen at work, income protection covers accidents and illness that happen anywhere. For example, if you break your hip while snowboarding, income protection has you covered.
An illness may also appear out of the blue, and the last thing you want to be focused on is how to pay the bills. Income protection allows you to focus on recovery with the knowledge that your financial commitments are being attended to.
Depending on the insurer you choose, income protection typically covers up to 75 per cent of your income until you’re able to return to work or have reached the maximum benefit period allowed by your policy. This money could go towards your family’s day-to-day living expenses, mortgage repayments and super contributions. That way, you won’t have to use up all your savings paying the bills.
For many people, securing a back-up plan offers a welcome peace of mind.
Most people consider income protection when their ability to meet their financial responsibilities relies on them working.
This may be particularly relevant if you are self-employed or the sole breadwinner for your family. If this is the case, it’s important to consider how you’d get by if you couldn’t earn your normal income.
Income protection may also be a priority for individuals with specialist occupations. Medical professionals, for example, have invested extensive time and finance into their education to ensure a ‘profession for life’. Specialist occupations may also face unique risks requiring specific cover – for example, ‘needlestick cover’ for medical professionals – which can be included when taking out a policy.
When looking for a policy, don’t forget to check whether you have any existing income protection included in your superannuation policy.
With most policies, you have the chance to choose between ‘stepped’ and ‘level’ premiums. It’s important to understand the difference between the two.
As a general rule, level premiums are a better investment if you intend to hold the insurance over a long period time.
With most income protection insurance policies, you have you to wait a certain amount of time before the monthly benefit is available to you. The good news is that you can choose a waiting period that works best for you – the longer your waiting period, the lower your premium would be.
When deciding on a waiting period, it’s worth considering any sick leave or other leave you might have available and how much you’re willing to dip into your savings.
Ultimately, there’s no one-size-fits-all solution when it comes to income protection – the right policy for you will depend on your needs and budget.
As always, take the time to compare products and make sure you review the Product Disclosure Statement (PDS) in detail.
If protecting your income sounds like a smart move, iSelect can help you find a suitable policy. Compare Income Protection Insurance online or speak to one of our qualified insurance advisers on 1300 887 299.