What it does for you
Income protection, also known as disability insurance, will replace up to 75% of your income for either a specified period of time or until you reach age 65, depending on the policy you choose. So, if you become seriously ill or have an accident that prevents you from working for an extended period of time your income protection will help you to live and meet some, if not all of your financial commitments. Importantly, it will also help you to avoid using savings and investments for daily living if you have a policy that allows you to do this.
Another component of income protection insurance that is available as part of an income protection policy is business expenses protection. This is insurance is designed for the self-employed or business owners. Business expenses protection can provide up to 100% of allowable business expenses incurred if you were to become disabled. Refer to Business Insurance for more information on important insurance cover for business owners and partners.
Choosing an income protection policy suited to needs
Many people have income protection insurance within their superannuation policy. This is often a cost effective means of obtaining income protection cover, however, this cover generally provides only two years of income protection. The smart solution is to take out a separate policy that has a two-year waiting period and a longer pay out period, such as until age 65. The two-year wait period will reduce the cost of the premiums for this longer acting policy, which can either be paid yearly or many now offer monthly payment plans.
Income protection policies differ from provider to provider. You will need to ensure the cover you get is the right one for you. Also, you will need to be sure that the policy covers everything you think it will for the money you are paying. For example:
- Does the policy suit your occupation?
- If you are on a salary package will it pay 75% of the package or only 75% of the cash component?
- Will it pay you only if you are unable to work at all, or will it pay you if are unable to continue your own occupation?
- Will it reduce payments in line with other savings or income you might have, including workers compensation? An adviser qualified in the area of risk insurance will be able to assist you to choose the most appropriate policy for you and your family.
