Income protection insurance. What is it, and who needs it? Few of us actually give much thought to what we would do if we suddenly found ourselves unable to work due to an illness or injury, but for those unfortunate enough to experience such a life-changing event with no income protection insurance in place, the outcome is usually bleak.
Many Australians believe that life insurance is all they need to be protected financially from an unforeseen accident or illness, but the fact is that many life insurance policies pay only upon death or permanent disablement. More than likely, an accident or illness will result in a lengthy period of time in which you will not be able to work, but if you’re not permanently disabled your life insurance policy will most likely not pay for your temporary loss of income.
The chances of being out of work temporarily due to injury or illness are more likely than a permanent loss of your ability to work. With that in mind, ask yourself what would happen to you and your family if you were suddenly unable to earn an income for six weeks, or six months. Would your bills be paid, your medical treatments covered, and your family cared for? If you have shied away from comparing income protection insurance policies in the past because you fear they’re too expensive, you may be surprised to know that there are plenty of providers offering many different policies to choose from, and you may very well find one that fits your budget.
Do you need income protection insurance?
Many of us don’t give much thought to our most valuable asset, which is our ability to work and earn a living. We have hectic schedules and busy lives, so there isn’t much time or desire to think about what “might” happen in the future. Understandable, but the future could be 10 years from now, or it could be tomorrow afternoon.
That said, the reality of even a temporary loss of income can be catastrophic. Bills will still need to be paid every month, your family will still need food on the table, and those are just the very basics. Your medical treatments will need to be paid for, possibly for more than just a few weeks. If you haven’t already, take an inventory of how much your family needs to function normally, and consider if they could do so if your income was lost for any length of time.
Income protection insurance can help families cope financially in stressful times. The financial cushion provided by your income protection cover will provide you and your family with the peace of mind that your living expenses are covered, and your medical treatments may be covered as well, depending on the policy you choose.
If you work for an employer, you may be eligible for sick leave benefits if the company offers them, but few employers can afford to be so generous in this economy. Even if you were to receive benefits from your employer, they could run out before you are well enough to return to work. Worker’s compensation insurance is only available to you if your injury or illness is workplace related, and even then your benefits may not be enough to meet your treatment needs, much less your living expenses. .
Self-employed individuals who suddenly find themselves out of work due to illness or injury could be heading for serious financial disaster if no income protection insurance policy is in place, particularly if they run the business singlehandedly, or if they are critical to the business’s ability to function. If you are self employed, ask yourself if the business could continue to draw revenues equal to its earning power if you weren’t there. If the answer is no, there are options available for self-employed individuals but it still comes down to the ability to maintain your financial obligations even if you can’t work. If you’re self-employed, take the time to compare income insurance policies and find one that best suits your needs and budget.
How much of your income would be covered?
Most income protection insurance policies pay a portion of the policyholder’s salary – ordinarily 75 percent – during the time period in which you are unable to work. Remember, policies vary in many ways, and you may be able to choose one that seems custom tailored to your needs, with those options included that you feel are most important. You can even decide what percentage of your income you want covered, which will help determine your monthly premium cost. When , make sure to find out about waiting periods and how long you will be entitled to benefits. Policies vary, and you may be able to choose those options that are most important to you including what percentage of your salary you will receive if you are disabled, the eligibility waiting period, and how long your benefits will last.
The length of your benefit period can be anywhere from six months to five years, depending on the policy you choose. The premiums you pay will depend on the way your income protection insurance policy is structured, so be sure to compare policies and speak to a financial advisor to clarify your best insurance coverage strategy. Log on to MultiCover.com.au
Luckily, in many instances your income protection premiums are tax deductable.