Income protection insurance gives you financial security in the event you are unable to work due to partial or total disability. This type of insurance policy pays up to 85 percent of your pre-taxable income for a specified time. Each insurance policy has a definition of partial or total disability that needs to be met before you can make a claim.
Who needs income protection insurance?
Income protection insurance is a good idea if you are self-employed or have your own occupation as a small business owner. It’s also a good idea if you have family or dependents who rely on your monthly salary. The financial security that comes with disability insurance means you can still meet your financial obligations, such as paying your mortgage.
Determining how much income protection you need requires a budget so that you can see all of your monthly expenses and how much you’ll need to cover them. Other factors to consider are whether you have a total or permanent disability or trauma insurance that helps replace lost income; if your private health insurance coverage helps pay for medical expenses; and what outside support you can get from friends or family.
Choose the right policy type.
Insurance companies offer two types of income protection policies. An indemnity value policy means that the amount you’re insured is a percentage of your annual salary at the time you make a claim. This means that if your salary decreases since the start of your policy, you’ll receive a smaller monthly benefit amount. An indemnity value policy is helpful if you have a stable income.
An agreed value policy means that the amount you’re insured for is a percentage of an amount you agree to at the time you purchase the policy. This policy is more expensive than an indemnity value policy, but it’s a good option if you have a fluctuating income.
Like any insurance policy, there’s no one-size-fits-all solution. Different income protection policies provide different levels of compensation, come with different terms and conditions, and have varying premiums. The best way to find the right insurance company and the most appropriate income protection policy is to compare providers. You can find cheap income protection insurance by comparing policies with iSelect. The comparison site makes it easy and fast to compare policies from a range of providers so you can find the best-fit policy for your peace of mind.
How do waiting periods work?
Most insurance companies have a waiting period before you can make an income protection claim. Most policies require you to be incapacitated for the entire waiting period due to injury or illness before you can make a claim. Typical waiting periods are between 30 and 90 days. During this time, your policy won’t pay any benefits; only injuries or illnesses that keep you from working beyond the waiting period are covered by the policy. If your insurance company allows you to choose your waiting period, this can affect the cost of your premium.
A benefit period is the length of time that your income protection insurance policy will pay disability benefits for a certain claim. There are limitations to the benefit period, including a maximum time period and an age cap. Income protection policies have benefit periods of 12 months or two years or until retirement age, depending on your policy and insurance company. You can apply for an income protection policy as long as you are below a certain age.
Before deciding to purchase an insurance policy, it’s important to read the product disclosure statement so you are clear on the terms, exclusions, and limitations.