Income Protection (IP) is a complex area, most clients get professional advice before they select a policy as it can be quite confusing.
Income Protection (also called temporary disability insurance) covers you if you are unable to work due to illness or injury. Most Australian policies will pay you 75% of your income if you are unable to work due to illness or injury for the duration of you injury.
All IP policies in Australia have a waiting period, the waiting period is the time at the start of your injury or illness before the insurance company starts paying you. They can range from 7 days to 2 years or more but 30 – 60 days is common. The shorter the waiting period the more expensive the policy everything else being equal.
Another key term on Income Protection is Indemnity or Agreed Value.
- An Agreed Value policy as is at sounds, the insurer assess’ your income when you first take out your policy and agrees on your income. Once this is done you do not need to provide Income information again for the life of your policy
- With an Indemnity Policy the insurer will pay out based on the lower of your insured amount and your actual income.
Indemnity policies are cheaper but in a lot of cases you are better of having an agreed value policy to give you certainty about what you are insured for.
Income Protection premiums are tax deductible for most Australians (check with your tax adviser to make sure) further lowering your out of pocket cost in holding these polices. For more information please see Income Protection Melbourne
(please note this Article has been written based on the laws and Income Protection Policies in Australia, if you live in another Country please check the key terms and how they apply in your Country)
Alan Maddick is a Practicing Accountant and Financial Adviser. He Also presents on a range of Financial and Business topics to Industry and Business Groups.
Ph 613 9773 2609