What is income protection?

Income Protection can cover up to 80 per cent of your income if you’re unable to work because of sickness or injury till you can go back to work or to the age of 65 or 70. There is no actual list of events in which you can claim, it is essentially any health issue that stops you from working, so it provides a very broad protection.

What are the most important options with Income Protection?

Some options will affect your benefits or premium significantly. Make sure you understand them.

  • Agreed value policy or indemnity policy

    Agreed Value Policy
    With an agreed-value policy, your monthly income insured payable will be the amount agreed on at the time of your application. The advantage is that you know what you will receive in the event of disability, regardless of changes in your income in the future.

    Indemnity Policy
    With an indemnity policy, your monthly income insured payable will be the lesser of the monthly income insured on policy schedule and 75% of your pre-claim earning. If your income has reduced since you applied for cover, your claim will be paid on the reduced amount.

    Agreed value policy is safer than Indemnity policy, while the disadvantage is it cost more (approx 15%).

  • Waiting Period

    Waiting period is the period of time between the date you cease work due to illness or an injury and the date the benefits become payable.

    For example, with a 30 day waiting period you would begin receiving payments after 30 days.

    The shorter the waiting period the higher the premium.

  • Benefit Period

    Benefit period is the maximum period of time your income will be payable while you are unable to work.

    For example, with a benefit period to age 65, if you were unable to work due to illness or an injury the policy would continue to pay you to age 65.

    As income is so important to family finance, waiting period of To age 65 is selected by most people.

Because Income Protection is the most important and complicated personal insurance,  you are highly recommended to get advice from an experienced adviser. An inappropriate policy will waste your money and can’t provide expected protection to you.

Why do you need an experienced adviser to compare the Income Protection from different insurers for you?

Income protection can be significantly different across different insurers. The 2 main differences are:

  1.  Premium. Sometimes the difference can be more than 50%.
  2.  Definition of disability. Good definition will make claim much easier.

Why do I need Income Protection when I have Worker’s Compensation from my employer?

Many people believe that a lump sum will be provided through Worker’s Compensation if they are substantially incapacitated. However, the truth is that 57% of disability claims are for sickness, whileWorkCover does not cover non-work related sickness. Add to that the fact that over half of all serious injuries happen outside  work where Work Cover doesn’t apply.

Even if you are able to claim Worker’s Compensation, the restrictions on benefit payments are such that you may never be able to retain your current standard of living.

Why do I need to protect my income?

When you consider how vulnerable a person’s lifestyle is to a loss of income, it may be quite a risk not having your income protected.

Consider how much you earn, multiply that by how many years you have until retirement, and then add a factor for inflation and pay increases. It doesn’t take a mathematician to work out that some people may be risking literally hundreds of thousands, if not millions of dollars if they were to suffer a long term medical condition without some form of protection.