Income Protection Insurance
Income Protection Insurance
Income Protection Insurance, also known as salary continuance insurance, pays a replacement income if you can’t work at full capacity or at all, due to sickness or injury. Income protection is designed to replace a portion of the policyholder’s income and help them meet their financial obligations while they are recovering from their illness or injury. Things like, helping to pay your mortgage, your bills and all other day-to-day expenses.
If you are ill and can’t work for a short period of time – you generally have access to sick leave. But if your illness or injury takes an extended period of time to recover from and your paid leave can’t cover it – income protection insurance can fill this gap, ensuring you will be able to maintain your lifestyle.
You need to be an Australian or New Zealand resident aged between 18 and 60 and must work at least 20 hours a week to be eligible for Income Protection Insurance in Australia.
Benefits of Income Protection Insurance:
- Income Insurance – Protects you against loss of income if you’re unable to work because of accident or sickness.
- Monthly Payments – You get a regular monthly payment while you’re unable to work.
- Up to 70% of Income Covered – You can insure up to 70% of your gross earned income (including superannuation).
- Unlimited Claims – No limit to the number of claims.
- Tax Deductions – Premium payments for income protection insurance are usually 100% tax deductible.
- Cancel Anytime – You can cancel your income protection insurance policy anytime.
- Money Back Guarantee – All income protection plans come with 21-day money back guarantee.
- Get Covered over the Phone – No face-to-face contact required! Get covered from the comfort of your home.
Income Protection Insurance Premium Calculation
Depending on the cover applied for, the factors affecting the cost of income protection insurance include:
- Age – Generally, the younger you are, the cheaper the cost of your cover. Thus, it’s important to apply for income protection before your next birthday.
- Health – The better the state of your health, the cheaper your cover. BMI plays an important part, so your weight and height is necessary for income protection quotes.
- Gender – Accident and illness rates differ between men and women, resulting in differing premium rates.
- Occupation – Each occupation group has different duties and risks associated with it. The greater the risk associated with the general duties of that occupation group, the greater the cost of cover for that occupation group. Time you spend in the office vs on the road, whether you work FIFO or in the city, all affect the income protection premium.
- Smoker status – Non-smokers premiums are generally lower than smoker premiums.
- Sporting or recreational activities – Sporting and recreational activities are assessed on a case-by-case basis. Generally, most sports are covered.
- The premium rate option you select – Premiums vary depending on the premium rate option selected. The effect of each option on the premiums you pay is described below.
- Combination of cover – By combining cover you only pay one policy fee.
- Optional extras available – Optional extras generally provide you with additional cover or benefits at an extra cost.
Income protection insurance is often purchased as a standalone policy, but it can also be taken out as an addition to a life insurance product or other types of insurance. Coverage options can vary, with some policies providing coverage for a set period of time (Benefit Period – Usually 1, 2 or 5 years or all the way to age 65) after a nominated waiting period (usually 30, 60 or 90 days).
Policyholders can choose their waiting period, benefit period and the amount of coverage they need, and the premiums will vary based on these factors and others as mentioned above.
The waiting period is similar to an excess which is the time you need to be off work before you can make a claim if you get sick or injured. The longer the waiting period the cheaper the cover.
You then need to select a benefit period (this is the maximum length of time you will continue to receive the insured portion of your income in the event you are unable to work as a result of your sickness or injury). The choices range from 1 year through to all the way till you turn 65. The shorter the benefit period the cheaper the cover.
Each insurance company treats pre-existing medical conditions in differing ways. If you have a pre-existing medical condition, it’s wise to consult an insurance adviser to find out which company will give you the most favourable outcome.
Is Income Protection Insurance too Complex?
This seems quite complex, doesn’t it? Not if you are dealing with an experienced Insurance Adviser! They will be able to explain everything in easy-to-understand simple terms.