What Is Income Protection Insurance?
If you were unable to work due to illness or injury, income protection can help you manage your expenses until you get back on your feet. Here’s a detailed look at income protection and what it covers.
What are the benefits of income protection?
Research suggests that over 50 per cent of Australians are not sure they would have enough financial support if something happened to them or their partner and they couldn’t work.*
That’s where income protection insurance could come in handy.
Income protection provides up to 75 per cent of your annual income if you become sick or injured over a short- or long-term period. It will keep you covered until you’re able to return to work or have reached the maximum benefit period allowed by your policy.
The key benefits of income protection insurance include:
- Income replacement. Provides up to 75 per cent of your annual income so you can manage your expenses if you’re unable to work due to sickness or injury.
- Paid as a monthly benefit. You’ll receive monthly payments to help cover your everyday expenses.
- Choice of benefit period. Benefit periods generally range from two years all the way up to 65 years (depending on eligibility).
- Choice of waiting period. Depending on your needs (and eligibility), you can choose different waiting periods anywhere from two weeks to two years.
- Can be funded through super. Income protection can also be funded through your superannuation, which means it won’t impact your take-home pay. Bear in mind that these payments won’t be tax deductible for you.
Even better, your income protection insurance premiums may qualify as a tax deduction, potentially making the choice to protect your income a more affordable part of your monthly budget.
Who needs income protection insurance?
While everyone’s situation is different, income protection insurance can be a good idea if:
- You are the sole income earner in your household.
- Your family relies on your income.
- You have car payments, a mortgage or rent.
- You are self-employed.
- You have a specialist occupation e.g. medical professional.
Income protection ensures that you will be able to meet your monthly expenses if you’re unable to work due to sickness or injury, giving you and your family greater peace of mind.
The key factors that determine the level of cover you may be eligible to receive include your age, occupation, income and health (including any pre-existing conditions).
Remember that your occupation may also have an impact on the type of cover you need. For instance, medical professionals may need specific levels of cover relating to their occupation, such as to cover needlestick injuries.
How do I choose a policy?
There are two types of income protection insurance:
- Agreed value insurance. Your income protection monthly benefit is based on your income substantiated by financial evidence at the time of application. Generally, the monthly benefit is guaranteed by the insurer at claim time regardless of what you were earning prior to your disability. As a result, these policies tend to cost more.
- Indemnity value insurance. Your income protection payment amount is based on the income you were earning prior to your disability substantiated by financial evidence at the time of a claim.
When choosing a policy type, term length and waiting period, it’s worth considering things such as access to annual leave or sick leave pay, ‘rainy day’ savings and financial commitments.
If you’re thinking about income protection, iSelect can help tailor a policy to suit your needs and your budget. Compare Income Protection online or speak to one of our qualified insurance advisers on 1300 887 299.
iSelect Life Pty Limited – ABN 89 124 304 347, AFS Licence Number 331128.
Any advice provided by iSelect is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice we give you, having regard to your personal situation, before acting on our advice or purchasing any product. We receive commission for each product sold. You should consider iSelect’s Financial Services Guide which provides information about our services and your rights as a client of iSelect.
* Galaxy Research March 2016: Interviews conducted among 1000 Australians aged 18-64 years who were main/equal decision-makers in their household for financial matters.