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People are taking on a great deal of debt – which can put them in a precarious position. What if something happened to you and you were unable to meet your financial responsibilities?
Some people may choose to take out income protection to cover their expenses if they find themselves unable to work, while others choose mortgage protection.
Income protection insurance covers your costs of living if you experience serious illness or injury that prevents you from being able to work.
So how does it work? Put simply, you pay an ongoing premium based on your income and preferences. If you’re unable to work due to illness or injury you’ll be entitled to a payment that can be used to pay your bills, mortgage repayments and other costs including education and rehabilitation.
If you compare income protection policies you’ll find a number of options. These generally include:
It’s important to note the difference between the type of income protection fund described above and an ‘industry’ or ‘salary continuation’ fund that you may have been offered through your employer superannuation. While the income protection described here offers thorough cover, ‘salary continuation’ plans can be very basic.
It’s common to confuse income protection and mortgage protection insurance but they are actually quite different. Mortgage protection insurance is a benefit that exclusively covers mortgage repayments. It cannot be used for groceries, bills or expenses.
Unlike income protection insurance, you generally take out mortgage protection insurance with the lender who provides your home loan. It is usually paid in either a lump sum payment or ongoing payments.
It’s important to consider your individual circumstances – no two situations are the same. This said, income protection is typically able to provide a greater level of financial security than mortgage protection.
It’s highly likely that you have a number of important expenses outside of your mortgage that you’d like to maintain if you were unable to work. The flexibility with income protection to use your benefit to cover a wide range of expenses is a definite bonus.