Income Protection

Do I Need Income Protection Insurance?

Life is full of uncertainties. We can’t predict the future, but we can prepare for it.

If you find yourself in a position where you’re unable to work for several months or years, income protection insurance can be your lifeline. Without your regular salary, paying rent, bills, and other expenses becomes tough-insurance steps in to help you meet your financial responsibilities.

So, is income protection worth it? Is it something you really need? Let’s explore these questions.

If you’d like personalised income protection insurance advice, please reach out. Our friendly team is here to help.

What Is Income Protection Insurance?

Life happens.

Income protection insurance is a type of personal insurance policy that pays you part of your regular income if you’re unable to work because of an injury or illness. It keeps money coming in when you can’t earn it yourself.

This can be a massive weight off your shoulders. You can take the time and space to recover without worrying about your finances.

You’ll receive a percentage of your pre-tax income each month. This is generally up to 90% for the first six months and up to 70% afterwards. This can help you cover essential expenses like rent, groceries, and utilities.

Your benefit continues until you can work again or until the specified benefit period ends.

What Is and Isn’t Covered?

Most policies cover partial and total disabilities, but each policy defines these conditions differently. You’ll need to meet the definition to make a claim, so always check the insurer’s website or the product disclosure statement before signing.

Short-term illness or injury is typically not covered. Most policies only start paying after you’ve been out of work for 30 to 90 days.

In addition, non-disabling conditions may not be covered. The policy may not pay out if you’re sick or injured, but you can still work in some capacity.

How Does Income Protection Insurance Work?

You might be asking, “Do I need income protection insurance?”

The answer really depends. Before weighing the pros and cons, let’s examine how these policies work and the types available.

First, you’ll need to file a claim with your insurance to receive the benefit. You’ll usually need to pass through a waiting period before this can happen — generally between 30 and 90 days. After the waiting period, you can start receiving monthly income replacement payments.

How long will the insurer continue paying? This depends on the terms of your policy. You can choose between 1, 2, 5, or 6 years. Some policies even provide benefits until age 70.

Finally, keep in mind that income protection insurance is global. You are covered 24/7, anywhere in the world. Most insurers will pay you in Australian dollars if you’re injured or sick overseas.

Types of Income Protection Insurance

Your life is unique. That’s why insurers offer different types and levels of protection. Here are some of your options:

Superannuation-Funded Policy

A superannuation-funded policy allows you to use your superannuation fund to pay the premiums. This can give you a tax deduction on contributions paid to your super fund up to your marginal tax rate.

Additionally, your super fund can claim the premiums as a tax deduction and get an extra 15% back, resulting in a total potential saving of 45%.

If this option sounds appealing, remember that your policy will not include some features, like trauma benefits.

This structure may be a great choice if you want to cut your out-of-pocket expenses and take advantage of tax benefits. It’s also an easy option if you manage your insurance through your super fund.

Immediate Coverage Policy

An immediate coverage policy is comprehensive. It usually includes day-one accident cover, trauma cover, bed confinement benefits, and more.

Say you are involved in an accident that leaves you in the hospital for a week. You will get paid for each day you’re in the hospital until the policy’s waiting period is over.

In addition, in the event of severe health conditions like cancer, the policy may give you access to six months of wages immediately.

Is Income Protection Worth It?

Deciding if income protection insurance is worth it depends on your situation.

Benefits of Income Protection Insurance

Income protection insurance gives you peace of mind. It’s a security net that supports you and your family when you need it most.

Here are some scenarios to think about:

• Are you self-employed or a small business owner? Consider income protection insurance. You likely don’t have sick or annual leave, so you won’t have any income if you can’t work.
• Life insurance and other financial support are essential if your family or dependents rely on your income. Income protection insurance can also help your family preserve their quality of life.
• Income protection insurance, like a mortgage, is also important for those with debt. You’ll need to make repayments even if you can’t work, and this type of insurance safeguards you against financial hardship should you lose your ability to work.

Drawbacks of Income Protection Insurance

On the other hand, income protection insurance can be expensive. If you have other types of insurance — like total or permanent disability or trauma insurance — these might help replace lost income.

If you have a strong support network, family or friends can help you financially if you can’t work. Additionally, you can manage whatever life throws your way without coverage if you have significant savings.

Get Personalised Income Protection Insurance Advice

Talk to an expert if you’ve been avoiding the insurance talk but know you need to get it sorted. We can advise you on the right policies, help with the paperwork, and even submit claims on your behalf.

At Rising Tide, your finances are our priority. We’re here to help you create a financial plan that works for you and your family. Our expert financial planners can support you with income protection insurance and more.

Contact us today, and let’s discuss your needs.

A Guide to Key Terms in Your Income Protection Policy

• Benefit Period: The length of time you receive payments if you can’t work.
• Permanent Incapacity (PI): Being unable to work due to ill health, confirmed by two doctors
• Stepped Premium: A premium that increases every year as you age (it starts lower but rises over time)
• Waiver of Premium: Ensures no premiums are paid while you receive income protection benefits
• Waiting Period: The time before payments start (longer waiting periods lower the premium cost)