Here’s why you should consider income protection insurance

income-protection-insuranceIncome protection insurance is one of the most claimed forms of insurance in Australia. When you consider that it safeguards your lifestyle in the event of illness or injury, it is no wonder that that this form of insurance is so popular.

What is income protection insurance exactly?

Income protection insurance should be a serious consideration for all working people as it acts as a replacement income if you become sick or injured and are unable to work for an extended period of time.

If you become ill for a short period of time, you are likely to be covered by sick leave. However, if you become ill for an extended period of time, income protection insurance will cover you for the duration of your illness and recovery. Being able to fall back on income protection insurance to meet day-to-day expenses and debt takes the stress out of the situation.

You can usually cover up to 75% of your income and to be eligible for income protection cover, you need to work a minimum of 20 hours per week.

The length of time you receive payments depends on the contract term and varies depending on the amount of cover you are willing to pay for.

What cover is available?

There are two forms of income protection insurance: indemnity and agreed value.

  1. Indemnity policies are the most common and less expensive. With an indemnity policy, you are insured for what you say you earn but if you have to make a claim, you will need to verify your income. Indemnity policies can be provided by superannuation funds and premiums can be deducted straight out of your account.
  2. Agreed value policies are the most expensive option. With an agreed value policy, you prove your income at the time of applying for the policy and a payment amount is established. When you make a claim, you will receive a set amount of money, regardless of any changes to your income. The advantage of this is that you know exactly how much money you will receive which is not the case for the indemnity policy.

What are the benefits of income protection insurance?

Some of the main benefits include:

  • Any loss of income due to extended illness or injury is covered allowing you to maintain your lifestyle and meet expenses.
  • You will receive regular monthly payments while you are unable to work.
  • There is no limit to the amount of claims you can make.
  • Premium policies are usually 100% tax deductible.

How much should I pay?

We recommend that you shop around for an insurance policy so you can compare prices and coverage. Premiums are generally determined by:

  • Your age,
  • Your occupation,
  • Your health status,
  • Whether or not you smoke,
  • Your gender,
  • The time you choose to wait before receiving payment.

Be savvy when selecting your policy

Some of the things to keep in mind when looking for an insurance policy are the following:

  • Consider what is and what isn’t covered by the policy.
  • Make sure you know how much will be paid out with each claim.
  • Find out what the premiums will cost now and further down the line.
  • Some insurers reduce payments if you have other sources of income so check if your policy contains this clause.
  • Check the waiting period as these vary between 30 to 90 days.

Get some advice

Deciding on a suitable income protection insurance policy doesn’t need to be an overwhelming process. Our advisers have plenty of experience and would be happy to help you find a policy that is best for you.

The information in this article does not constitute legal or financial advice. If you would like to discuss any of the above in greater detail, please contact your local Axis adviser.

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