What is income protection insurance?

Income Protection provides a benefit if you suffer a loss of income due to a sickness or injury. A monthly payment for a nominated period of time can help you keep your household running and provide for your loved ones while you recover.

Income Protection provides a benefit if you suffer a loss of income due to a sickness or injury. A monthly payment for a nominated period of time can help you keep your household running and provide for your loved ones while you recover.

Income Protection is about taking the financial pressure off so you can concentrate on getting back on your feet without the stress of providing for your loved ones and lifestyle.

What are the key features?

• Cover up to 70% of your income or up to $30,000 per month
• Your choice of waiting period
• You can apply if you’re between 19-60 years (it may be up to 55 dependant on your occupation)

How much will it cost?
Income protection insurance is unique to every individual and we can help you to find the right insurance for your age and financial situation. Cover that is tailored to supporting you and your loved ones if you were ever unable to work. Get a quote for income protection insurance here.

Choosing an income protection policy
Some of the things you’ll need to consider when choosing an income protection policy are:

Policy type

• Income protection policies are either an:
  Indemnity value policy — the amount you’re insured for is a percentage of your salary when you make a claim. If your salary has decreased since you bought the policy, you’ll get a smaller monthly insurance payment. If your income is variable, your insured amount will be based on average annual earnings over a period of time appropriate for your occupation.
• Agreed value policy — the amount you’re insured for is a percentage of an agreed amount when you sign up for the policy. These are generally more expensive but can be useful if you have income that changes from year-to-year.

Waiting period
This is the amount of time you must wait before your payments start. Most income protection policies offer a waiting period between 14 days and two years. You must be unable to work as a result of your illness or injury, at the end of the waiting period, to be eligible for payments.

In general, the longer the waiting period, the cheaper the policy. When you’re choosing the waiting period, think about how much you have in sick and annual leave, savings and emergency funds.

Benefit period
The benefit period is how long the monthly payments will last if you remain unable to work due to your illness or injury. Most income protection policies offer two or five years, or up to a specific age (such as 65). The longer the benefit period, the more expensive the policy, but it also means greater protection if you’re unable to work for a long time.

Stepped or level premiums
You can generally choose to pay for income protection insurance with either:

• Stepped premiums are recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
• Level premiums charge a higher premium at the start of the policy, but changes to cost aren’t based on your age, so increases happen more slowly over time

Your choice of stepped or level premiums has a large impact on how much your premiums will cost now, and in the future, so ensure you choose the right policy to meet your needs.

What you need to tell your insurer
An insurer will ask you questions when you apply for or change your insurance.

These questions may be about your:

• Age
• Job
• Income (salary, wage, commissions)
• Medical history
• Lifestyle (for example, if you’re a smoker)
• High risk sports or hobbies (such as skydiving)

If an insurer doesn’t ask for your medical history, it may mean that the policy has more exclusions or narrower policy definitions.

The information you provide will help the insurer decide:

• If they should insure you
• How much your premiums will be
• Terms and conditions for your policy

It is important that you answer the questions honestly. Providing misleading or incomplete answers could lead an insurer to cancel or vary your cover or decline a claim you make. For the best advice on Income Protection Insurance, Life Insurance or General Insurance, contact WealthSmart and one of our expert advisors can guide you through the process.

General advice warning. This advice does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. Should you require any help please contact Wealth Smart on 1800 765 100.