Have you ever considered what life would be like if your source of income was cut off? Perhaps you were injured or you fell extremely ill and were unable to work – do you have cover in place to protect you and your family’s finances if the worst were to happen?
This is why there is a great need for Australians to compare income protection insurance and take out a policy that will provide you the best cover when you are unable to earn an income due to injury or illness.
If you have never considered income protection Insurance before, you may be pleasantly surprised by the benefits that can be provided by having this cover.
However, before diving into the deep-end of purchasing income protection insurance, there are many important factors that need to be considered to ensure you are purchasing the right policy for you and your needs.
Why Income Protection Insurance is so important
Many Australian’s may come to the realisation that they do not have enough protective measures in place should they no longer be able to work, which is why income protection insurance is becoming increasingly sought after in our country.
Unlike other forms of insurance that can provide a lump sum payment, this particular form of cover is specifically designed to meet the costs of your day to day living expenses.
Income Protection is designed to replace up to 75% of your income in the event of you not being able to work due to illness or injury after a pre-defined period time, known as the waiting period.
It is not hard to see how this type of insurance can make a difference to your life if your income stream was cut off for a period of time.
Income Protection Insurance Considerations
When you begin to compare income protection insurance policies available in the market, you will soon find that choosing the right policy is not a simple task. Every insurer creates their own income protection product and as such, they all have varying definitions and conditions.
It is important to consult with an adviser who is able to take your personal situation into account and appropriately recommend a product and insurer that is right for you.
The complex nature of income protection means that there are many ‘non-core’ benefits that exist within each product. You will find that once you have spoken with an adviser, you will be made aware of extra features and benefits you never realized were included.
It is also important to take factors such as the waiting period, benefit period and benefit type into account and your adviser can provide recommendations on these based on your individual financial circumstances.
The Waiting Period
One of the most important things to consider when establishing an income protection policy is the waiting period.
The waiting period is defined as the amount of time you must be unable to work prior to going on claim and thus prior to receiving monthly benefits. As you can imagine – the shorter the waiting period, the more expensive the premium will be.
The waiting period can vary from as little as 14 days to as much as 2 years. There a many things to consider when selecting the appropriate waiting period such as any sick leave you may receive from your employer and how long any savings or assets you have could provide an income to cover your cost of living. Therefore, it is important to discuss your options with an adviser.
The Benefit Period
Another core component of an income protection policy is the benefit period. A benefit period refers to how long you will be eligible to receive your monthly benefit should you go on claim. Benefit periods range from as short as 1 year to expiring at age 70 at selected insurers.
The benefit period is also a key determinant of the premium – the shorter it is, the cheaper the premium gets.
The Benefit Type
Another aspect of income protection insurance that is crucially important is whether you choose an agreed value or indemnity benefit type.
With an agreed value policy, you prove your income at the time of application and as long as you have earned enough in the 12 months prior to this, your monthly benefit is guaranteed.
An indemnity policy means that you will have to prove that you have earned enough in the three years prior to the illness or injury leading to your disability in order to satisfy the monthly benefit you have. If for any reason your earnings drop after you have taken out an indemnity policy, you won’t be able to claim your full benefit.
An adviser can assist you in weighing up the pros and cons of each benefit type and help you assess how they would apply to your individual circumstances. If you are on a tighter budget, indemnity policies are a less expensive alternative to an agreed value policy.
However as previously mentioned, this is because at claim time you may not be entitled to receive the full benefit you are insured for if your income has decreased. If you are an employee with a steady income, this may not be of great concern to you. However if you are self-employed and your income is subject to fluctuations in the profits of your business, it may be wiser to lock in the certainty of an agreed value policy.
Your adviser can discuss this in more detail with you and compare the finer details between different insurers.
Once the waiting period, benefit period, and benefit type has been considered, you will be one step closer to having the security of income protection insurance in place.
Find the Best Income Protection Insurance
When it comes to comparing income protection insurance, it is important that you take some time to speak to an adviser who has the expert knowledge and experience in this area.
One of our insurance advisers from Cover Australia can help you choose the policy that most closely matches your unique needs as well as your budget.
Income protection insurance is a must have for many working Australian’s because it can provide peace of mind should you be unable to work. The income that you receive is invaluable at a time where your expenses will have increased significantly.
When comparing income protection , our advisers at Cover Australia have the expertise to provide you with the right cover to suit your needs. Call us at 1300 366 817 and we can ensure that you have the income protection insurance that you have been looking for.