Income Protection Insurance
A guaranteed steady income is essential to your health and peace of mind, but many people don’t realise that they can have their income protected by insurance, just like other assets.
Income protection insurance provides a portion of your income if you find yourself unable to work due to illness or injury. It guarantees that that you’ll be able to cover your daily living expenses even if you aren’t receiving an income.
What will I get from Income Protection insurance?
You don’t realise how indispensable your income is until it’s lost. Indeed, few people are aware just how much they spend weekly – and how devastating it can be if you are no longer able to cover these costs.
Income Protection insurance can replace up to 75% of your income during periods where you are not able to work because of illness or injury. Superannuation contributions of up to 15% can also be covered.
An Income Protection insurance case study
A 36 year old couple has two children in primary school and a $550,000 mortgage. The father works full time for $75,000 and the mother part time for $18,000. The father injures his back and must take 7 months off work. At the time of the accident, they have $7,000 in combined savings.
It is thanks to Income Protection that the family manages to stay afloat. The father receives $4,650 a month, allowing the family to continue to pay living expenses and meet their $2,900 monthly mortgage payment without depleting their savings or relying solely on the mother’s income, which is $1,500 per month before tax.
What are the key features of Income Protection insurance?
The following are some of the key features of Income Protection insurance:
- You will be covered for a range of illnesses listed by the insurance provider
- Your premium can be waived while you are receiving a claim
- You can select the waiting period between making a claim and receiving your first benefit payment
- You can choose how long you wish to receive your benefit. The longer you choose, the more expensive your premiums will be.
- You can choose between indemnity value cover and agreed value cover, which can influence your premium and benefit amounts.
With Income Protection insurance you can also receive a range of additional features, including:
- In-home care
- Hospital and accident cover
- Accommodation and travel assistance
- Family care
Read more details and a full list of key features of Income Protection insurance.
How Are Income Protection premiums calculated?
Income Protection insurance premiums are calculated according to your own personal circumstances, much like Life Insurance premiums.
These circumstances vary from policy to policy, but they usually include:
- Age – with benefits decreasing and premiums increasing as you get older
- Gender – with female rates tending to be higher than for males
- Pre-existing medical condition
- Industry or occupation – manual work attracts higher premiums than office work
- Lifestyle choices, including whether or not you are a smoker
It’s worth noting that, depending on individual circumstances, Income Protection insurance premiums are usually tax deductible.
Under what circumstances can I receive my cover?
There are no specific set of conditions under which you can claim Income Protection insurance. Essentially, the insurance covers anything that prevents you from working.
There is one notable exception to this rule: you cannot receive income protection if you are made redundant.
You can generally receive your cover after your elected waiting period from first receiving the injury or illness has passed. This waiting period can vary between 14 days and two years. The longer your waiting period, the lower your premium will be.
Your income protection cover then lasts until the policy expires or until you return to work, whichever comes sooner.
It is important that you read all of a policy’s product disclosure statement (PDS) before you commit so you’re aware of what is and isn’t covered.
Find out more about how Income Protection works in Australia.
How do I choose the best Income Protection Insurance policy for me?
Whilst a steady and reliable income is essential for your health and peace of mind, many people do not realise that they can count their source of income as another insurable asset.
Whether you’re an employee or run a business, Wealth Smart can help you find the Income Protection insurance package that suits your unique life situation and keeps you and your family financially secure through all of life’s challenges.