You don’t realise how indispensable your income is until it’s lost. Indeed, few people are aware of just how much they spend weekly – and how devastating it can be if you are no longer able to cover these costs. Without active income protection insurance in Australia, you never know just how vulnerable you are.
The best income protection insurance works in several ways. 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. Ask for an income protection insurance quote today.
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.
Get an income protection quote as soon as you can and take out the policy while you still have a job.
Understanding the income protection cover basics
Sum insured: The sum insured is the amount you’ll be paid when you claim. It is usually a percentage of your income (generally up to 90%). It’s limited to a maximum amount per month. As in any other policy, if the sum insured is more, the premium costs will go up.
Your sum insured can be lowered if you earn through other ways as well, such as a part time job or getting paid through other policies.
Benefit period: It’s the maximum time during which you’ll receive monthly payments from the insurer when you claim. If your policy has a higher benefit period, its premium will usually be higher. For example, if you want to stay covered until you reach 65, your premium will be higher than if you want to stay covered until you reach 60.
Waiting period: Waiting period is the time for which you have to leave work after an illness to be eligible for the monthly insurance payments. It generally ranges from a week to a few months. For example, if you want the insurer to start paying you when you’re unable to work for over a week, your need to enter “1 week” in the waiting period section. If you select a shorter waiting period, the premiums will generally be higher.
There is also a partial disability benefit cover that will cover you if you get back to work but with limited capabilities. So for example, if you get back to work but only part time, this cover will keep you protected. Your monthly benefits will be reduced and you’ll be paid until you return to work with full capacity, or until the benefit period expires.
Structure of income protection insurance payment in Australia
You can structure your premium payments in two ways:
- Stepped premiums: These premiums can step up or down throughout the duration of the policy. It usually increases each year as the age of the insured increases.
- Level premiums: Level premiums aren’t related to age but they can still increase throughout the duration of the policy because of factors such as inflation.
Stepped premiums are usually cheaper than level premiums in the beginning but they can increase quickly and become more expensive over the years.
Here are the pros and cons of stepped premiums and level premiums:
- Cheaper in the beginning when you take the insurance
- A good option for people who don’t want income protection insurance for long term
- Over the years, you’ll have to pay more through the duration of the policy
- It may become more expensive as you get older
- It will be cheaper in the long term
- A good option for people who want income protection insurance for long term
- They pretty much stay constant over the policy lifetime
- More expensive in the beginning
Agreed Value vs. Indemnity Value
Income protection insurance in Australia used to be of two types:
Agreed value and indemnity value
With an agreed value policy, the insured and insurer agreed on the benefit income based on the insured’s income at the time of getting the policy. So even if the policyholder’s income changes over the years, they will be paid the amount they agreed on at the time of signing the policy documents.
Agreed value policies used to cost more than indemnity policies because they came with a certainty of the payment amount.
An indemnity value policy will pay you a percentage of the income you earn at the time of making a claim. If you’re making less money now than what you were at the time of signing the document, you will be paid a lesser sum. This is why indemnity value is more affordable.
Currently, only indemnity value policies are available in Australia. Let’s see why the agreed value policy was discontinued.
Agreed value policies caused these issues
The biggest issue was the cost they incurred to insurers. This made income protection policies unsustainable. To combat their losses, insurance companies made agreed value policies more expensive. This in turn made premiums unaffordable and resulted in difficulties for the consumers.
Apart from this issue, there was also the issue of insured individuals getting more than what they were getting in the job. The purpose of insurance is to cover for losses and not to give more than what someone lost.
When people will start getting more without going to work, they wouldn’t want to go back to work because they’ll be earning handsomely through their insurance payouts.
Due to all these reasons, agreed value policies are discontinued and you can only get indemnity value income protection insurance.
Why get income protection insurance?
Income protection insurance is created to help people when they suffer from an illness or accident and thus are unable to continue work. This insurance helps them cover their expenses such as loan repayments and bills. With this insurance, they are able to make financial ends meet until their return to work and start earning again.
You might also want to learn about the permanent disability insurance that helps someone if they meet an accident or suffer an illness and get permanently affected by it. It covers the insured when they permanently aren’t healthy enough to return to work.
However, for temporary disability, you’ll need income protection insurance to cover your expenses when you’re at home, sick. While this insurance is good for everyone, it’s important for people who fall in the below categories:
- Those who aren’t protected by an employment agreement that allows them annual leaves or sick leaves
- People who are the main breadwinners of the family
- Those who have debts to pay
- Individuals who don’t have a lot of savings
- Individuals who want to sustain their lifestyle even when they fall sick.
You’ll need to submit some lifestyle information to see if you’re eligible for an income protection cover. Please note that premiums for smokers will be higher than premiums for non-smokers.
What does income protection insurance cover you for?
With an income protection policy, you’ll be covered against income losses due to injury, illness, or disability that doesn’t let you work with full capacity. It covers temporary issues where it’s expected that the affected person will be able to return to work after the treatment.
Here are some examples in which you can benefit from this cover:
- When you suffered a road accident and need some time to get healthy and resume working
- When you suffered an illness and need an extended period of time to heal
- When you undergo a surgery and need a long resting period
- You’ve lost some movement in your limbs and need extended physiotherapy sessions to regain your movement and energy.
These are just some instances in which an income protection cover can come in handy. Basically, this cover will help you in any case when you need time to recover before you can return to work.
What does income protection not cover?
There are some cases in income protection insurance that might make you unable to file a claim. To avoid such an issue, make sure you read the policy documents carefully when signing the papers. Discuss your policy expectations with us and we’ll help you out. Want to learn what is private income protection insurance? Talk to us.
Let’s discuss some cases in which you might be refused a payout. Keep in mind that these cases depend on the policy you take
- If the insured dies, their family will not receive a payout. That is covered by life insurance
- If the injury is minor and doesn’t affect the insured’s capability to work
- Common issues such as back pain might need a longer waiting period
- If the insured is in a job where injuries are very common
- If it’s an illness that was present when the policy was taken
- Injuries due to dangerous sports such as rock climbing, mountaineering, cave diving, etc.
- Self inflicted injuries or self harm
There are very few cases in which a claim is denied and most conditions are covered by income protection insurance. Discuss it with us and we’ll be happy to assist you.
Do I really need income protection cover?
Income protection is a good cover to protect you in case of unforeseen circumstances. Here are some uses of income protection:
Protection against inflation: With inflation, prices of goods and services go up. This means you can buy fewer and fewer things with the same money you have. And prices always go up in the long run. This is why it’s important to protect your income while also retaining its value. With income protection, you and your loved ones will have financial security even when you’re temporarily unable to work.
Maintain quality of life: If the primary earner of a family suffers from an injury or disability, it can severely affect the lifestyle of the family. With a private income protection policy, you and your family can live comfortably as you take time to heal.
Debt coverage: If you’re paying for a debt or loan (such as a home loan, car loan, etc), you can continue paying its monthly instalments even if you get injured or sick. This gives a much-needed peace of mind that your necessary payments are being made regularly.
Childcare: If you have a child and you have to pay their school or college fee, you can continue doing that with the help of income protection cover. Or if another family member is taking special classes to enhance their skills, your cover will help them realise their dreams without taking a break due to financial instability.
Basics of life: While it’s important to have the debts paid off and maintain a quality of life, without an income protection cover, the basics of life might seem too expensive. Basic utilities such as clothing, fuel, and even food can seem expensive without a steady income. With a good income protection policy, you can give yourself time to heal without being stressed.
Want to learn what is income protection insurance? Let us know and we’ll be happy to guide you.
What is the cost of income protection insurance?
Different policies come with different premiums. And the premium for one person can vary greatly from that of another person. There are many factors that determine the income protection insurance quote. Some of these factors are:
- Age: The older you are, the higher your premium will be.
- Job: If you work in a risk-prone environment, you might not qualify for a cover or you might have to pay a higher premium.
- The percentage of income covered: If you want a higher percentage of cover, your premium will be higher.
- Health: If you’re a healthy individual and a non smoker, your premium will be low.
- Policy duration: A longer duration will cost you higher premiums.
- Waiting period: For a shorter waiting period, you’ll need to pay a higher premium.
- Benefit period: For a longer benefit period, the premiums will be higher.
Things to disclose to the insurance company
When applying for income protection insurance, make sure you’re honest about the details you fill in. Any discrepancy during the filling out of forms can lead to not getting a claim when you need it. These details need to be provided when you apply for a new policy or renew an old one.
Some of these details can be:
- Your age
- Your job
- Your income including your salary and other wages and commissions
- Your medical history
- Your lifestyle and if you smoke or not
- Your hobbies and if you perform high risk activities such as skydiving
All these details will decide whether you’re eligible for the insurance and how much you’ll need to pay. If you hide details such as your smoking habits, you might get lower premiums but they can deny your claim later. It’s best to be completely honest with your insurance company so you can easily file for a claim if you ever need to.
Things to consider if you’re confused about income protection
If you’re not sure about getting an income protection cover, here are some points to consider:
- If you became ill and couldn’t go to work, how will you manage your expenses?
- If your company pays for sick leaves, how many can you get? Do you think they are enough for a typical illness or injury?
- If you run a business, how will you manage expenses if you’re unable to handle things?
If you think that income protection is right for you, also consider the premium and what you can afford. You might want the best income protection cover with a minimum waiting period and maximum benefit period. You also might want to get a higher percentage of your income. But all these factors will raise your premium. Fortunately, the premiums of income protection insurance are not very high and you can easily afford the best income protection insurance policy.
Talk to us and we’ll help you find how much premium you have to pay for the policy you like.
You might not need income protection if…
You might not need income protection at all. Here are some conditions when you don’t need income protection.
- You get enough sick days: If your employee covers you with enough sick days so that your injury can heal completely before you return to work, you can skip on the income protection.
- Your other insurance has a cover: Some life insurance or other insurance covers also have income protection cover. If your life insurance has it already, you might not need a separate cover.
- You have enough savings and you’re willing to spend them: An illness can dry out your savings. If you’re willing to do that, you can avoid taking income protection cover.
- You have family financial support: If you have support from your family and you know they’ll pay for your expenses if you suffer from an illness, you can ignore the income protection cover.
Make sure you weigh the pros and cons of income protection insurance before ignoring an insurance cover. A small premium can ease off your financial responsibilities in case of an illness or injury.
Wondering what is private income protection and how to get it? Ask us and we’ll be happy to assist you.
What are some other products like income protection insurance?
One similar policy is critical illness cover. While you might think they are the same but there’s a difference between them. Critical illness cover usually pays in a lump sum. Also, it identifies only critical illnesses that are mentioned in the policy. Income protection covers more conditions than critical illnesses. Critical illness cover isn’t tax deductible, unlike income protection insurance.
Another policy is the redundancy cover that will help you in case you lose your job. For example, if your employer goes out of business or you face involuntary redundancy, you’ll be protected by the redundancy cover.
A redundancy cover is available on many income protection policies. Make sure you discuss your needs with us and we’ll find the right cover for you.
Keep in mind that income protection will not help your family in case of your demise. It will keep you covered only when you’re unable to go to work temporarily because of an illness or injury. You might want to buy a life insurance policy to keep your family financially safe.
How much is income protection per month?
The insurance payout is a percentage of your income. For a higher percentage, you’ll need to pay a higher premium. To understand how much insurance you need, consider the following factors:
- Create a household budget including your daily spending, fuel and electricity bills, mortgage and other loan payments, and other payments you have to make regularly.
- Consider your savings and how long can they sustain you for your current lifestyle.
- Calculate how much premium you can pay. According to your budget, get a policy that suits your needs.
Finding the right policy might not be easy. You can discuss things with us and our experts will be happy to help you out.
Who can apply for an income protection insurance
To get income protection insurance in Australia, you should fulfil these criteria:
- You should be a permanent resident of Australia or an Australian citizen or a New Zealand citizen
- You should be between 18 years and 59 years of age
- You should be a permanent employee or a self employed person spending over 20% of working hours at home
- You should be working for at least 20 hours a week
- You shouldn’t be performing heavy and manual work
If you meet all these terms, select a policy according to your needs. There are several products offered by different companies and if you’re confused about which income protection insurance to buy, discuss your needs and expectations with us.
How to get an income protection quote
Getting an income protection quote is extremely easy. You don’t even have to leave your house. And it’s free! Just fill in a simple form with your basic details such as name, occupation, and smoking status.
Now you’ll need to fill in your desired policy details such as the benefit amount, benefit period, waiting period, and payment structure. According to your requirements, you’ll be shown several policies. You can select among them or discuss it with our experts.
What is an income protection allowance?
Many people ask us what is income protection allowance. It’s the monthly payout you get when you claim. Your allowance is decided at the time you take the policy. It is usually a percentage of your income and the higher percentage you select, the more your premium will be.
For example, let’s say your monthly income is $5000 and your policy says you’ll get 75% of your income. When you claim, you’ll get $3750 per month until the benefit period is up or until you’re able to work with full capacity, whichever comes first.
Inside/Outside of superannuation
You can get income protection cover in your name or even in your super fund. Super funds are also sometimes known as salary continuance. Getting income protection inside of superannuation may be cheaper in many cases.
Should you get income protection insurance in your own name or inside superannuation funds? Let us compare the pros and cons.
Insurance inside superannuation pros:
- The premiums you pay through super are generally tax deductible to the super fund.
- Premiums can be paid through the accumulated super money.
- These premiums are largely cost-effective
Insurance inside superannuation cons:
- This type of insurance generally comes with just the basic features.
- There might be some situations in the clause where you cannot get the benefits until you retire.
Insurance outside superannuation pros:
- Income protection premiums are tax deductible.
- Benefits are paid directly to the insured.
- These policies can have extra features according to your preferences.
Insurance outside superannuation cons:
- Income protection premiums are generally higher.
- The benefit amount is taxable.
Optional benefits of superannuation ownership
Here are some optional benefits of getting super ownership
- A super cover that lets you have contributions being made to the super fund
- Rehabilitation and ancillary benefits
Risks of superannuation ownership
When you pay the premium through your accumulated superannuation balance, it reduces the growth of retirement savings. If you want to have a decent retirement fund, you’ll need to make extra contributions towards the premiums. And these contributions will be counted in the contribution caps.
Should you get an income protection policy inside or outside of superannuation? If you can’t decide, discuss your details with us and we might be able to guide you better.
Important changes since October 2021
There have been some changes since 1 October 2021. The Australian Prudential Regulation Authority (APRA) recently expressed its concerns over insurance companies offering policies at very low rates to get more customers. APRA wants insurance companies to review their premiums and offerings so they can have long term sustainability. With these concerns, these are the changes that have been applied to insurance policies:
- Insurance companies should have risk management strategies to reduce the risks with long term benefit plans.
- The maximum replacement will be 90% in the six initial months and then 70% after that. Customers can opt for a lower payout to save money on premiums.
- Your insured income will be based on your yearly income at the time you claim. The payout should be not be based on your salary older than 12 months. Before this change, insurers used to look back at the last three years and find the lowest 12-month period while giving claim money.
- Claims will be examined for “own occupation” for the two initial years and then for “any occupation” based on experience and education. Prior to this, all claims were examined for “own occupation” which means the insured was protected if they were unfit to perform in their own occupation.
Impact of these changes
After these changes, there are more variations in policies. As customers now have more options, their premium costs are also different. However, when there are more options, customers might get confused about the right type of policy to buy for their needs. If you need any help or guidance regarding the best income protection insurance policy, let us know and we’ll be able to assist you.
If you purchased a policy before 1 October 2021, these changes won’t impact your policy. However, since there are newer options for income protection insurance now, you might want to review your cover. If you feel that your existing product is the best for you, you don’t have to get your policy revised.
Some main changes include:
- Insurance policies now have different terms and features to manage the risks of a longer benefit period.
- Some features and benefits have been removed, reduced, or replaced to make sure that income protection benefits aren’t higher than the insured individual’s pre-disability income.
Explaining income protection with some examples
Let’s consider some examples to understand what is an income protection policy:
David is an electrician who has started suffering from back and knee pain. He runs his business and is unable to work because of excruciating pain. He has visited four specialists and they advised him to take a break from his work. This means no more hard work for a year. As he’s unable to keep working to sustain his livelihood, he decided to file a claim on his income protection policy. He has been off his work for about three months now. He filed a claim and received three months’ insured income immediately. He will also keep receiving money until he gets back to work. He can give time to his back to heal until he finally resumes work in a few more months.
Let’s take another example.
Elizabeth is a teacher who fell down a flight of stairs and fractured her arm and leg. As a result, she’s able to work part time but can’t continue fulfilling all her duties because the movement in her arm and leg is restricted. She can work part time but not full time like she used to. Her financial advisor helped her file a claim and she got monthly benefits until she was able to return to work with her full capacity.
With these two examples, we see two very different people benefit from their income protection policies. If you’re a primary earner of the family and want to have peace of mind regarding having a steady income even if you face an illness or accident, it’s wise to be insured.
Keep in mind that the more benefits you want from your policy, the higher your premiums will be. Calculate your budget and find a policy accordingly. Discuss your needs and expectations with us and we’ll be happy to assist you regarding the best income protection policy.
Is income protection complicated?
At Wealth Smart, you’ll get comprehensive policies. But comprehensive doesn’t mean complicated. We have a very easy online application process. You don’t need to take a medical test to be eligible for our insurance. Just answer a few questions and you’ll be able to get an insurance policy.
Features of income protection policies from Wealth Smart
Wealth Smart offers several policies based on your needs and expectation. Here are some common advantages that you’ll get with all our policies.
- Ability to choose your cover: You get to choose how much cover you want, your waiting period, your benefit period, and for how long do you want to stay insured.
- Continued cover: All our plans will continue until the specified duration is reached.
- Peace of mind: When you know that your expenses will always be covered even if you’re unable to work for a specific interval of time, it gives you peace of mind. You can go ahead and purchase a house or a car, knowing that your expenses are covered even in case of an unforeseen occurrence.
- Upgrades: If the policy you select gets an upgrade, it will automatically be applied to your policy, depending on the company rules and protocols.
- You choose your premium: Depending on your choice of policy, you get to choose your premium. You can add or remove as many features according to the premium you’re ready to pay.
- Free and instant income protection insurance quote: Just fill out a simple form and you’ll get an instant and free insurance quote. You can change your preferences accordingly to get a quotation that suits your budget.
- Always available: We are always here to answer your questions and to help you get the right policy. We also guide you on how to get a claim.
How to compare income insurance policies
When you fill out the form in Wealth Smart, you’ll come across many amazing policies to protect your steady income in case of an illness or injury. However, it’s important to choose the best income insurance policy from all of them.
Here are some points to keep in mind to compare and contrast the policies.
- Replacement ratio:
According to APRA, a maximum of 90% of your pre-disability income can be used in the six initial months when the benefit period starts. And a maximum of 70% of your pre-disability income will continue after that. However, these are the maximum ratios and some policies offer ratios much lower than these. So some products can have a ratio of let’s say 60% after a particular duration or at a specific age. It’s important to keep the replacement ratio in mind when selecting a policy.
- Benefit offset
Since there are different policies, you’ll find different benefit offsets. Depending on the policy you select, your monthly benefit payout might get reduced due to other deemed incomes. The deemed income can reduce the benefits you receive each month. Before you get a plan, you need to familiarise yourself with how much benefit offset is mentioned in the policy documents.
Here are some benefit offsets that might affect your payout: income earned in business conduct, income earned from personal exertion, the share of income or profit that you continue to receive from your business, unaffected business income, long service leave, sick leave, workers compensation, annual leaves, consumer credit benefits, other income protection payments, social security payments, disability support payments, interest dividend, rent, capital gains from investments, contractual royalties, annuities, and other sources of recurrent income.
- Usual occupation or any occupation
Most income protection insurance policies examine the insured person’s ability to work in full capacity depending on their usual occupation (their pre-disability occupation). However, some insurers examine the insured individual’s ability to work in any occupation. This is examined based on the training, experience, and education of the insured.
This is a more restrictive definition of disability and might limit your claim payments even if you’re unable to work in your own occupation. If you’re physically and mentally able to work in any other occupation, the insurer would want to restrict your benefit payout.
- Income tiers
APRA specifies the replacement ratio as a maximum of 70% after the six initial months of the claim. However, some companies use an income tier approach.
Let’s understand this with an example.
In this example, an individual earns $500,000 per year.
With income tiering:
- First $240,000 of income: 70%
- $240,001 to $480,000: 40%
- $480,001 to $960,000: 20%
- $960,001 and above: 0%
This comes out to $268,000 per year.
Without income tiering:
- 70% replacement ratio without tiers.
This comes to $350,000 per year.
As you can see, the replacement ratio in this case with income tiering comes to about 53.60% and without income tiering comes to exactly 70%
Make sure you understand income tiers before you purchase a policy. If you’re not sure which one to buy, discuss your needs and expectations with us.
- Sustainable pricing
APRA specified on 1 January 2021 that insurers must use industry experience studies not older than 18 months. They also need to conduct internal research every year. With that, it will ensure that companies don’t use outdated information when calculating premiums.
Without current data, insurance companies cannot calculate the right premium and this has resulted in premium increases in the past few years.
Discuss your concerns about sustainable pricing with our experts and we’ll be able to help you out.
- Sustainability and long term benefits
APRA discusses the importance of understanding the risks linked to long term claims. When an income protection policy holder wants to claim benefits, their claim can be limited due to some factors. These risk factors need to be addressed. There are some recommendations given by APRA to manage claims. Here are some of the options to manage the risks:
- a) Own occupation vs. any occupation: As discussed earlier, find out if the benefits you receive will be on own occupation or any occupation.
- b) Reduction of income replacement ratio: Find out the benefit offsets to see how you can maximise your claims.
- c) Capability clause: If your treating doctor believes that you have regained the physical ability to join your work but you feel like you need more time to heal before you can continue working, your insurer might reduce the monthly payments to you. This is proportionate to the number of days in which you could have worked. The capability clause is put in place by the insurer to manage the risks they face with long term claims. This helps them as well as the insured individuals who are validly disabled even after a certain duration.
- d) Retraining and rehabilitation: Some insurers don’t just pay the claim but also have retraining and rehabilitation programs where their clients can visit and take care of their health and wellness. When individuals take part in these programs, they turn out to be healthier and happier, and thus less likely to file a claim. This doesn’t just help the insured individuals but also the insurer companies. Even if healthy people do file for a claim, it’s generally for a shorter duration.
Use these six benchmarks to compare income protection policies and to find out which one is the best for you. Of course, a good policy will also cost more. Fortunately, income protection covers aren’t expensive. And the benefits they offer are immense compared to the premiums you pay for them today.
Income Protection Insurance and Tax Benefits
You can claim a tax deduction on the premiums you pay for income protection insurance. The deduction applies only to the premiums you pay for income protection. To claim tax benefits, you need to include details of payments you receive under the insurance policy when filing the tax return.
However, if the policy is taken through the superannuation fund and your premiums are paid through the contributions, you cannot claim a deduction.
This tax benefit doesn’t apply to insurance policies that pay a lump sum. For example, your life insurance premiums, critical care premiums, and trauma insurance premiums are not tax deductible.
An example of income protection insurance tax benefits:
Chris takes an income protection insurance policy along with a personal injury policy. His total premium payments per month are $300. He’s paying $200 towards income protection and $100 towards personal injury. He can claim $200 per month for his income protection policy. The $100 he’s paying towards personal injury is not deductible because it pays in a lump sum.
How long the payments will last on an income protection cover
It depends on the benefit period selected by you. For example, if you’ve selected a benefit cover until you reach 65 years, you can be covered for that duration. It’s important to select a cover that gives you adequate time and the money you need as you heal.
For instance, if you select a period of five years when you take the policy, every time you make a claim, you’ll be paid for a maximum of five years if you’re unable to work for that duration. If your doctor or medical practitioner feels that after the treatment, you’re healthy enough to rejoin your work but you want to get more rest, your benefits will get reduced.
The good thing is that you can claim the benefits many times throughout the duration of the policy. If you suffer from a disability multiple times, you can file for claims accordingly. However, the benefit payment depends on the terms and conditions listed in your policy document.
If there are any limitations or exclusions, it’s a good idea to study them to understand the policy better. Our experts are always available to help you understand the policies and select the right income protection insurance policy according to your requirements. Discuss your needs with us and we will be happy to guide you.
The income protection gap
Full time workers, especially men, are more likely to have income protection. There is a wide gender gap when it comes to taking insurance cover. Apart from these factors, a person’s position in their family as a breadwinner also decides how much insurance they will have. For example, the primary earner of the family is more likely to be insured.
Several people prefer income protection benefits through their employer even if it means that they will take less money home. This shows the rising knowledge and popularity of income protection policies. Workplace income protection coverage might also offer rehabilitation services. But in reality, employees might not be aware of their income protection benefits. Besides, these benefits are generally offered by large employers or multinational companies. People employed in smaller organizations may not get these benefits and have to get a private income protection policy.
The need for income protection in a global scenario
In case of an illness or disability, most people fail to protect their income and this poses a huge challenge for the economy. There is a severe impact of an individual having a disability on their family. This income protection gap doesn’t just affect an individual and their family but also governments, businesses, and the economical system.
There is an acute need for income protection with or without government support. As people age, disability levels rise and more people are unable to work the way they used to. This doesn’t just affect their personal finances but also the economy as a whole.
Cost of income protection
Many people don’t take income protection even when the policies are available to them due to the perceived cost of the premiums. However, the premiums of such insurance aren’t as expensive as assumed by people.
Income Protection Insurance Frequently Asked Questions
Q: Can I claim if I’m suffering from Covid?
You can claim if your doctor has advised that you are too sick to work. However, please check the waiting period mentioned in the policy. Most Covid patients recover within a month and if your waiting period is more than a month, you might not be eligible for a claim.
If you’re claiming because you’re in isolation and can’t come to work, but your doctor hasn’t certified that you’re ill enough to not work, your claim will be denied by the company. You’ll get benefit payments only if your doctor verifies that you can’t continue working because of the illness.
Usually, there are no pandemic exclusions on income protection insurance policies so your claim for Covid will be treated as a claim for any other illness.
Q: Can my partner apply for a joint policy?
Yes, if you and your partner apply for a policy, you might be eligible for a discount of a certain percentage. However, this discount usually applies only when you both take the same policy.
Q: Do I need to have blood tests or some other kind of medical exam to be eligible for a policy?
There is no need for a medical exam or a blood test to get an income protection insurance policy. However, the insurer will ask you some questions and you need to answer them honestly. Any wrong answers while getting a policy can result in claim denial later on.
Q: How much income protection should I get?
If you want to get a higher benefit amount, your premiums will be higher. This is why some people get a policy that’s just enough to cover their living expenses. While getting a policy, consider factors such as your debts or loans. Will a basic policy be enough to help you pay for your loans? Calculate your monthly expenses before you purchase a policy.
Q: Can my occupation be covered with income protection?
Most occupations can be covered with income protection. Your occupation might be eligible unless it is considered dangerous or hazardous. If your job has some risks associated, they will be examined by the insurer, and based on that, they might deny you the insurance or offer an insurance policy with a higher premium.
Q: Is it difficult to get income protection insurance if you’re self employed?
Not at all. Whether you’re self-employed or are working somewhere, it’s easy to get insurance when you use Wealth Smart. Income protection is especially important for self employed people as they don’t get sick leaves or other employee benefits. If you’re running your own business, you should also consider disability insurance since you don’t have an employer to give you these benefits.
Q: What if I can’t continue to pay the income protection insurance premiums?
If you want your policy to stay valid until its lifetime, you’ll need to pay regular premiums. But when you’ve filed a claim and are receiving benefits, you don’t need to pay the premiums. Apart from that, you need to pay your premiums regularly. For some specific conditions, you can pause premium payments for a maximum of 12 months. Here are the conditions:
- You lose your job and become unemployed
- You have taken unpaid leaves
- You move overseas for work
- There are some other financial hardships you’re facing
- You’re on a maternity or paternity leave
These are some conditions on which you’re able to pause your premiums temporarily. However, it depends on the insurer. When you pause your premiums, you won’t be covered during that period. After this break is over, you can start paying your premiums again.
Q: Can I make changes in the policy after taking it out?
Income protection insurance policies are usually flexible. However, it depends from one insurer to another. You can apply for a change and your insurer will examine the changes and if they want to accept or deny them.
In most cases, you can increase/decrease the cover amount depending on the increase/decrease of your earnings. If you want to increase the cover, you’ll typically need to give some information to the insurer such as your occupation, your employment status, the new income, and your health status.
Before making the changes, it’s best to know if these changes are reversible. If you had a temporary raise or received a bonus, it’s not advisable to make changes in the policy.
Q: How to claim an income protection insurance policy?
Check your waiting period and make a claim accordingly. When you make a claim, you need to inform your insurer as well as your employer (unless you’re self-employed). You will receive some forms from the insurance company and when you fill and submit the forms, your claim may get accepted.
Once it gets accepted, you’ll get paid per month. This will be a percentage of your pre-disability income, as mentioned in the policy documents. Your claim will be assessed each month to determine ongoing eligibility. This means you might be asked to submit a doctor’s report each month.
Q: Can I talk to someone regarding my doubts about income protection insurance?
You can always discuss your doubts and concerns with us. Just call us at 1800 765 100 or email us at [email protected]. We are also available on social media including Facebook, LinkedIn, and Twitter.
What are the key features of Income Protection insurance?
With all the noise around this insurance, you must be thinking ‘What does income protection cover?’ 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
It is clear that that the income protection cover you buy translates into a lot of benefits besides being a source of income.
Read more details and a full list of key features of Income Protection insurance.
How Are Income Protection premiums calculated?
Life insurance and income protection are both designed around your specific needs. And yes, self employed income cover is a thing and it works similar to other income protection covers.
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. But you stand to recover a portion of your earnings if you have a superannuation income protection policy in place. Get in touch with your insurance advisors for an income protection insurance online quote. Check out the eligibility set by top insurers and then settle for the best income protection insurance in Australia.
Another thing to note before you accept an income protection online quote is the waiting period. 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. For instance, few insurers accept income protection redundancy quotes since it is not covered by this type of insurance.
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. Make sure you compare income protection insurance quotes while you are still employed and protect the income you’re getting.
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.