Advantages of Income Protection

What is income protection insurance?

What happens if life throws you a curve ball in the form of sickness or injury and you’re not able to work? Would you have enough money put aside to cover your expenses for the next few weeks, months or even years?

Income protection insurance is insurance that covers a portion of your lost income for a set period of time if you’re unable to work because of sickness or injury.

Put simply, it protects your income and helps pay the bills so you can focus on getting better.

Why have income protection insurance?

The last thing you need to worry about if you have an accident or fall ill unexpectedly is how you’re going to pay your bills while you recover.

Income protection insurance is designed to replace your income based on your annual earnings in the 12 months prior to your illness or injury.

What does income protection insurance cover?

Income protection insurance offers a benefit payment:

• up to 90% of your pre-tax income in the first six months, and
• up to 70% for a specified time after six months.*(Source: Moneysmart.gov.au)

Do you need income protection insurance?

Income protection cover is particularly important if you:

• are self-employed or are a small business owner
• have debt, such as a home loan
• have family members who rely on the income you earn.

Quick tip: A simple way to determine how much income protection you need is to tally up your monthly expenses and the income you’ll need to replace those expenses.

What income protection insurance is right for you?

There are a few things to consider before you choose an income protection insurance policy:

• what the income protection insurance policy actually covers
• what level of cover you will need
• what income protection insurance policy is right for you.

Income protection insurance policies are either indemnity value or agreed value. However, from 31 March 2020 insurers can no longer offer agreed value policies to new customers. The good news is that indemnity value policies are generally cheaper and can be useful for people with a stable income. (Source: Moneysmart.gov.au)

So how does an indemnity value policy work? It’s simple, really. 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.

Quick tip: You can generally choose to pay for Income Protection cover with either ‘stepped’ premiums or ‘level’ premiums.

Will I have a waiting period?

Yes, you will.

Most income protection insurance policies offer a waiting period between 14 days and two years. In general, the longer the wait time, the cheaper the policy.

Will my payments be made indefinitely?

No, they won’t.

Most income protection policies offer 2-5 years of benefits – or up to a specific age (such as 65 years). The longer the benefit period, the more expensive the policy.

Contact Us

At MBA Financial Strategists we have been helping people create long-term financial plans, including income protection insurance, since 1985.

Book your appointment to chat to one of our financial advisors about your options for income protection cover.

*Source: MoneySmart.gov.au

https://moneysmart.gov.au/how-life-insurance-works/income-protection-insurance