Do I Need Income Protection Insurance?

Although it’s something most of us don’t want to think about, everyone is at risk of falling sick or becoming injured at some point in their lives. When sickness or injury strikes, more often than not it also means you’ll be unable to work while you recover.

How are you going to pay for your medical bills, living expenses and repayments when you’re not earning an income?

It’s this risk that leads many to compare income protection insurance and purchase a policy to give them the protection they need if the worst were to occur. However, income protection insurance isn’t the right fit for everyone. So, when undertaking an income protection insurance comparison, there are a few things to consider.

Here’s all the essential information you need to know to make an informed decision.


What is Income Protection Insurance?

Income protection insurance supplements your income when you’re unable to work due to sickness or injury. The cover can provide up to 75% of your gross wages over a specified time period. This can be calculated either as a number of years or up to a certain age, depending on the policy. Commonly the options are 2 years, 5 years or up to 55, 65 or 70 years old.

Depending on the policy you choose, income protection insurance can cover you for either not being able to perform your normal occupation or not being able to perform any occupation.

Two policy types are available under income protection insurance – agreed value and indemnity value. You could be paid a pre-determined fixed sum regardless of your income (agreed value) or the figure could be based on your earnings from the previous year(s) (indemnity value).


What’s the Difference Between Stepped and Level Income Protection Policies?

When choosing an income protection policy, you will often have a choice between stepped and level premiums. Stepped premiums mean that your insurance premium will increase every year as you age, making your policy cheaper in the beginning but costing you more money over time.

Level premiums remain the same no matter your age. Although the upfront costs are much higher, the premiums are much cheaper as you get older compared to the stepped option. Despite this, the actual premium could still waiver over time due to inflation or insurer fee changes.


How is Income Protection Insurance Different to Other Cover Options?

Wondering how income protection insurance is different from the other policy options out there? Let us break it down for you.

Life Insurance – Family members receive a payout after your death in the form of a single lump sum payment.

Trauma Insurance – Provides a lump sum payment while you’re recovering and unable to work due to a traumatic condition.

TPD Insurance – A lump sum payment is made to you after being inflicted with an injury or illness that prevents you from ever being able to work again.

Income Protection Insurance – Replaces your regular income when you become injured or fall ill and are unable to work. This cover is designed to maintain your financial security while you recover.

As you can see, each type of insurance has its own specific purpose and outcome, and they all complement each other to provide fully comprehensive coverage, hence why you are also able to purchase these policies as a combined cover.

Income protection insurance, however, is the only policy type that provides a consistent and regular payment for the time period required.


Is Income Protection Insurance Right for Me?

Most people take out income protection insurance for peace of mind and to maintain their quality of life if they were unable to work. The types of people who commonly take out income protection insurance include:

  • Individuals with dependents who rely on them and their regular income
  • Self-employed people
  • Small business owners
  • Professionals who are vital to the continual running and upkeep of a business

How Do I Decide if Income Protection Insurance is Right for me?

Your decision will largely come down to your lifestyle and current financial situation. If your spouse also has a full-time job, you don’t live pay check to pay check and you have a decent level of savings, investments and zero debt, you may not need income protection insurance.

On the other hand, if you have a partner or children who rely on your income and you have a number of debts and expenses that current savings just won’t cover, income protection insurance is well worth considering.

Also, consider the additional strain on your health if you’re unwell yet repayments and expenses still need to be paid. The last thing you need is to worry about money when you’re trying to recover from sickness or injury. You can focus instead on recovery and recuperation.

And finally, think about your current lifestyle, occupation and likelihood that you could get sick or hurt. Although it’s something you may not want to think about, you need to face the reality that it could happen to you and you should be prepared.


How Much Does Income Protection Insurance Cost?

Premiums vary greatly depending on a number of key factors including:

  • Gender
  • Age
  • Occupation
  • Pre-existing conditions
  • Smoking
  • Amount of time chosen to wait before payment.

Speak with one of our Cover Australia advisers or get a quote to compare income protection insurance online for an accurate costing to suit you.


How Much Cover Will I Need?

Consider how much money is needed to keep you and family comfortable and financially stable if you were to become sick or hurt and were unable to work.

If you don’t think you could get by with an income that is far lower than what you currently earn, stick with an indemnity value. Otherwise, if you have savings, investment, assets, investments or other forms of cover that could also contribute towards your expenses, an agreed value policy may be more than enough to get you by.

Remember that up to 75% of your gross income can be covered under this policy, so this needs to be taken into account when working out the level of cover you need.


What Other Things Should I Consider Before Doing an Income Protection Insurance Comparison?

  • Always make sure you’re aware of any exclusions or circumstances that would prevent a payout if a claim was made for the particular policy you wish to purchase.
  • Find out how long you will need to wait for a payout. The longer the waiting period is, the cheaper your policy will be – keep in mind however that benefits are paid monthly in arrears, so in the event of a claim, you may not receive your first payment for up to an additional month on top of your waiting period. If you opt for a longer waiting period, make sure you have enough savings to get you by during that time.
  • Income protection insurance is tax deductible.
  • Up to 75% of your income will be covered under an income protection insurance policy.
  • Some policies include guaranteed future insurability. This is a benefit which allows the level of cover to be increased without the need for further underwriting. This is especially useful when circumstances change such as buying a house or having a child.

Compare Income Protection Insurance with Cover Australia

Don’t go it alone when you have to compare income protection insurance. Our expert advisers at Cover Australia are here to help you make an informed decision.

Along with having expert advisers on hand to help with your purchase decision, we also offer a comprehensive income protection insurance comparison service with policies from leading Australian insurers.

Click Get A Quote to compare income protection insurance policies today or call us on 1300 366 817 to speak with one of our trusted advisers.

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