Your Guide to Protecting Your Income

Your guide to choosing an income protection policy that meets your requirements. Take your stage of life, occupation and budget into consideration when selecting your income protection policy type, monthly benefit, benefit period and waiting period.

Published June 2, 2016

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Ask Yourself Two Questions

1. How much money have I earned up until now?

If you’re like me and have been working non-stop since the day you completed your studies, you might have an impressive 16+ years of income earning under your belt. While I can’t recall each year’s income I’d venture a guess that my total income over these 16+ years to be about $960,000 gross.

2. What proportion was made from employment vs passive income?

I have made many investments throughout the years in the hope of generating a substantial passive income. However, to date, my passive income from investments has yielded only about $25,000 of the above sum.

The above two questions aims to demonstrate the reality many working Australians face – that your biggest asset is your ability to work and earn an income.

Are you taking the appropriate steps to protect this asset? Do you have appropriate insurance coverage, such as income protection, in place to provide you and your family with financial security should you suffer a sickness or accident and not be able to work and earn an income.

If your family’s financial future is important to you and you’d like to find out more about the benefits of income protection, then this guide is for you.

What exactly is income protection insurance?

This type of insurance provides you with a monthly income should you fall victim to a sickness or accident that keeps you off work for a period longer than the waiting period of the policy. For example, if you were diagnosed with prostate cancer or you broke your leg and can’t work due to do this illness or accident.

What does income protection cover and how long will it last me?

Generally covers you for up to 75% of your salary and assists you in paying for those ongoing expenses, like rent and mortgage payments, school fees and groceries. Most income protection policies expire at age 65, as long as you continue to pay your premiums.

However, this is not always the case. For example, if you have a 2 or 5 year benefit period and your policy has paid out your maximum benefit, it will stop. It’s best to thoroughly read and understand the relevant insurer’s PDS before you commit to a decisions.

When does the Benefit Period of an income protection policy start?

Usually, your benefit period will kick in the day after your waiting period has come to an end.

Your benefit period will vary according to your chosen insurer, and is set by you during the application process, usually at 2 to 5 years or until your age of 65. In some cases the benefit might be payable until your 70th birthday.

When will the monthly income be paid to me?

This will depend on certain aspects of your policy, including:

How does the waiting period work?

The waiting period is the amount of time you need to be off work before the benefit period starts.

The waiting period is generally selected by you at application time and will impact your premiums and ability to claim.

Do I really need to protect my income with an income protection policy?

It depends. If you feel your ability to work and generate an income is worth insuring, then yes.

People typically consider income insurance when:

Such a protection policy can allow you to provide for yourself and your family. Continue to pay your mortgage, credit cards and bills, while keeping your investment strategies in place.

Does it cover redundancy?

The policies we compare at Life Insurance Direct do not usually cover redundancy.

How many hours do I need to be working to be eligible for a policy?

Each insurer has their own view on the minimum amount of hours per week you’ll need to be working when you apply for a policy. This can range from 20 to 30 hours per week. If the average amount of hours your work is in this range or below, it is important you talk to a specialist before selecting a policy.

We make it easy for you to compare policies online with our powerful comparison engine.

Buy with confidence today for peace of mind tomorrow.

Super funds can offer a type of income insurance policy which is generally called Salary Continuance insurance, however there are a number of limitations in having your insurance within a superannuation environment:

People generally have a misconception regarding what exactly workers comp covers and its payment period. The primary limitation is that it will only pay if the injury happens at work, usually not covering you for sicknesses or accidents that occur at home. The maximum pay-outs also vary from state to state.

Centrelink, the sickness allowance benefit provides eligible Australian residents a $527 per fortnight benefit should you have a sickness or accident and satisfy all their requirements, including:

The benefits provided by centrelink are extremely low and most working Australians would find it very difficult to meet all the eligibility criteria.

How much do I need and what will it cost me?

When purchasing an income protection there are a few things you need to consider. It might also help if you first determined how much money you need to cover your standard monthly expenses. Our income protection calculator will assist you in determining how much cover you’ll need.

Shop around and compare cover and prices – they differ greatly. Your premiums will be dependent on a number of things, including your current salary and benefit period you want to be covered for. Other determining factors include your:

On the bright side, premiums for protection insurance are generally tax deductible.

Can I increase my cover?

Try to find a policy with a guaranteed future insurability option. This can be a built in feature that comes standard with a select number of products. It allows you to increase your cover without additional medical information, within a certain period of time, when you’ve gotten salary increase and want to cover said increase.

Choosing an Income Protection Policy

There is more than one kind of policy. You have a number of options to choose from, but it’s important that you always consult the insurer’s product disclosure statement before commencing. The right policy for you depends on your requirements and specific circumstances.

There are generally three main options:

  1. Indemnity value covers you for a monthly benefit based on your earnings before the accident and illness.
  2. Agreed value generally pays a fixed sum and will not reduce with any changes to your income, however you need to provide financial evidence to support this fixed monthly benefit during application stage.
  3. Guaranteed agreed value is a term used by select insurers to validate your financials are received and on file, confirming your monthly benefit.

For more ways to tailor your policy, read our detailed policy option guide.

Whatever policy you choose, there are some key questions to ask:

Things You Must Tell Your Insurer

You must correctly and accurately answer all the questions the insurer requires of you, to at the time of your application, including full details of your:

  • Occupation
  • Past times
  • Family medical history
  • Income status
  • Medical history

If you leave anything out (non-disclosure) and then later try to make a claim, your insurer might refuse your payout.

You must also tell your insurer of circumstances that might have changed between the time you applied and when the cover starts, for example becoming pregnant. Also, tell your insurer if you partake in dangerous hobbies or have a lifestyle that includes heavy drinking and/or taking drugs.

If you already have a pre-existing medical condition, look for an insurer that will be prepared to cover it, although you might have to pay more or have an exclusion attached to it.

Provide the insurer with the most complete information you can. This allows them to accurately understand your particular circumstances.

How to Buy Income Protection

You can buy a protection policy from a life insurance broker or directly from the insurance company. Remember, when taking out any insurance policy, you should carefully read the terms and conditions.

Not all insurance companies offer equal.

Look for helpful built in benefits that might be included in your policy. It’s also important that you regularly review your total insurance coverage package as your circumstances change. Ask an experienced insurance advisor about the insurance products they have which best meet your current needs.

You can also save on your protection policy by:

Conclusion

As a working professional, your most important assets is you. The ever-present possibility of sickness or injury is without a doubt your biggest risk. Protect yourself and your family’s needs, while you’re unable to work and earn a salary. Contact an insurance specialist and start comparing quotes today.

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1300 135 205

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