Protect your income if you're unable to work

Oct 13, 2020 | Private Wealth

What income protection insurance covers

Income protection insurance pays up to 85% of your pre-tax income for a specified time if you’re unable to work due to partial or total disability.

Each income protection policy has its own definition of partial or total disability that must be met before a claim is made. Check the insurer’s website or the product disclosure statement(PDS) for the definition and any exclusions.

Your income protection policy will have a waiting period before payments start due to loss of income through injury or illness.

Income protection insurance doesn’t cover you for lost income because you are stood down or become unemployed.

Deciding if you need income protection insurance

Income protection insurance can be important if you:

  • are self-employed or a small business owner, as you may not have sick or annual leave

  • have family members or dependents that rely on the income you earn

  • have debt, such as a mortgage, you’ll need to make payments on even if you’re unable to work

To work out how much income protection you need, prepare a budget. This will help you see your monthly expenses and the income you’ll need to replace. You may want to factor in making payments to your super as well.

Also consider:

  • if you have total or permanent disability 

     or trauma insurance, that can help replace lost income

  • if you have private health insurance that could help pay for any medical expenses

  • what help or support from family or friends may be available

If you need help deciding if you need income protection insurance and how much, speak to us on |PHONE|.

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 provided as 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. Indemnity value policies are generally cheaper and can be useful for people with a stable income.

  • 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.

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. 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 longer time.

Stepped or level premiums

You can generally choose to pay for income protection insurance with either:

  • Stepped premiums — 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.

Use our Life insurance claims comparison tool

Compare how long it takes different insurers to pay an income protection claim and the percentage of claims they pay out.

How to buy income protection insurance

Check if you already have income protection insurance through super. Most super funds offer default income protection insurance that’s cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.

You can also buy income protection insurance from:

  • an insurance broker

  • a financial adviser

  • an insurance company

Premiums you pay for income protection insurance held outside of super are generally tax deductible. Policies outside of super usually allow a higher amount of cover and have more features and benefits available.

What you need to tell your insurer

You need to tell your insurer anything that could affect their decision to provide you with insurance. You need to give them this information when you apply, renew or change your insurance.

This can include your:

  • age

  • job

  • income (salary, wage, commissions)

  • medical history

  • lifestyle (for example, if you’re a smoker)

  • hobbies or activities that are high risk (for example, skydiving)

The information you provide will help the insurer to 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 answers could lead an insurer to deny a claim you make.

Making a claim on income protection insurance

If you want to make a claim, see making a life insurance claim for information on what to do. 

Please contact us on |PHONE| if you seek further assistance on this topic.

Source : Moneysmart,Gov.Au September 2020 

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at

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

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

 

<a href="https://ugc.net.au/author/louis/" target="_self">Louis van Coppenhagen</a>

Louis van Coppenhagen

Louis is a Financial Adviser with 15 years experience, three university degrees and specialist qualification in Aged Care.

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