Income protection insurance

... continued below

More Insurance-related articles

Wills: Ready, Willing and Able
Planning for the future is something that many people put off ? particularly where writing a will is concerned. This is because, regardless of how old we get, no one likes to think of their demise. As such, we move through life often unconcerned for the long-term implications our short-term decisions may have on our future, or that of our family.
Business: Avoiding Loss with Proper Risk Management Strategies
Financial loss is something that no business wants to suffer, and many small business owners try to avoid downtime, expenses and accidents. But will insurance provide the total solution ? or is there more that?s needed to ensure business continuity?
Disability Insurance vs. Health Insurance
When faced with the option of whether to purchase disability insurance, many consumers say no without fully understanding the consequences of their decision.
Life Insurance: How much is enough?
When considering life insurance, you?re planning and preparing for an event most of us would rather not think about. But life insurance represents a critical step in managing your personal finances and ensuring your family?s well-being.
Women are the underdogs when it comes to insurance
Research released by the Investment and Financial Services Association in late September highlighted the fact that Australian women with dependent children had significantly less life insurance than their male counterparts.

Subscribe to our monthly MoneyTips newsletter for fresh new articles, tools and tips!

Income protection insurance ... continued from above

Ask yourself what would happen if you woke up tomorrow and found you were incapable of working for an extended period. 

Could you support your household? 

Meet your loan repayments? 

Save for the future?

Income protection insurance, also known as disability insurance, pays you an income if you are unable to work because of sickness or injury. 

You can insure to receive payments (usually monthly) of up to 75 per cent of your current income while you're out of action.

Doesn't WorkCover or my super fund already protect me?

WorkCover protects you if your injury is connected with work. But it doesn't cover you for sickness or if you have an accident hiking on holidays. 

It's worth checking on your super fund, though. Many super funds now provide salary continuance insurance which will pay you an income for up to two years if you're unable to work. 

This may mean you can get away without income protection insurance, or opt for a cheaper policy.

How do I choose an income protection policy? 

It's worth talking to an adviser (as opposed to a salesperson) about which one suits your needs. Most insurers have several products on offer and a range of options that come with each product.

The first choice is between an agreed-value policy and an indemnity policy. 

With an agreed-value policy, you have to prove your income up front, but once that's done, you know exactly what you'll be paid if you're unable to work. 

This type of policy is more expensive, but suits people like the self-employed who have variable incomes and want some certainty about their claims. 

With an indemnity policy, the company generally insures you for what you say you earn up front, but asks you to verify your income if you make a claim.

Both types of policy can be increased each year for inflation, but if you're likely to have a rising income, it may also make sense to choose a policy that allows you to increase the sum insured without the need for new applications and medicals.

Income protection policies also come in basic and deluxe versions. 

The basic version generally provides you only with income payments while the deluxe version can have add-ons such as paying nursing care or accommodation benefits or paying benefits immediately if you have an accident - rather than insisting on the normal waiting period.

It's also important to understand exactly when you can claim. 

All income protection policies include definitions on when you are unable to work. 

Some of the cheaper policies, for instance, say you can claim only if you are unable to perform your normal job; other policies will pay if you are unable to perform one or more of your important duties. 

Policies also have exclusions - circumstances in which they won't pay - which are worth knowing.

There is also a range of choices to make on issues such as how long you're prepared to wait before making a claim and how long you want the income payments to go for if you do claim.

Is income protection expensive?

Premiums can vary significantly. 

As a rule, women and blue-collar workers pay more, though the increase in stress-related claims by white-collar workers has resulted in higher premiums - especially for professionals such as doctors and lawyers.

Can I do anything to cut the costs?

Income protection insurance is tax-deductible, so the costs can be reduced by making sure you claim your premiums in your annual tax return. (But any claims you make will be taxed as income.)

Outside this, the simplest way to cut the premium is to opt for a longer waiting period or limit the period in which you can claim. 

Waiting periods can extend as far as two years while income payments can be for as little as a couple of years or up to age 65.

Some insurers will give you a discount if you provide evidence of your income up front, and some offer lower premiums if you agree to a 12-month limit on payments for conditions caused by mental disorders such as depression or stress.

Many people also don't realise that they can insure for less than 75 per cent of their income - maybe insuring the full amount for the first two years and then 50 per cent after that.

Needless to say, you can also cut costs by not paying for extras that you don't think you'll need. 

But bear in mind that the real test of the policy comes when you make a claim - paying a few extra dollars for certainty can be better than simply taking the cheapest deal going.

Reader comments about this article
By Anant
Very useful article, I am 24 working in IT and dont have income protection, but I am going to get one ASAP becaues you never know what life shows you tomorrow...
By Leona Goodman
With the issues arising from Work Choices it would be good to know your income would be protected if the government ever changed the conditions for taking sick leave.
By Debbie
Dont wait to take out an Income Insurance policy until after the situation happens to a close one.As I have now discovered, it is also tax deductable and has a range of flexibility to suit needs.
By Kah Heah
It cost you alot for income protection insurance, but alot more if you don't have one... more than just financially but also other aspects of life.
By Karena Wotherspoon
I think it is important to have income insurance here in Australia, you are able to maintain your lifestyle and have the peace of mind knowing that you can still pay the bills, while recovering from an illness or accident, not getting yourself into debt.
By greg soper
i will be looking into income insurance when i get back to work. One less thing to worry about in life.
By Financial Services Online
Add your comments or a review of this article and you'll get a FREE ENTRY into this month's $12,000 cash bonanza prize draw. Simply enter your details and your comments in the form below for your chance to win!
By Financial Services Online
Add your comments or a review of this article and you'll get a FREE ENTRY into this month's $12,000 cash bonanza prize draw. Simply enter your details and your comments in the form below for your chance to win!
-
Please add your own comments below

Name:
Email:	(your email address will not be published for public view)
Comments :	Please note: All comments are reviewed by our editorial staff before they will appear on this page.
	Please type the security code shown above in the space below (letters are case-sensitive.

Disclaimer: The information contained above has been provided as a general service. Any references to specific financial, legal, accounting, or taxation issues are done so in the context of general information and should not be relied upon as fact or construed as advice by the us in any of these areas. You should consult a relevant financial, legal, tax or accounting professional to assist in your particular circumstance.