Table of Contents
See also: 20 Highly Demanded Professionals in Australia 2021
Let’s talk: Why Income protection is necessary?
While it’s easy to dismiss “insurers” in the wake of the banks Royal Commission’s conclusions of “unconscionable” sales practises, there are instances when having adequate income protection makes perfect sense.
If you’re in the middle of your career and have a young family, a large home loan, and private school tuition to cover, knowing you’ll be able to maintain your family’s lifestyle if you’re out of work for an extended period of time due to injury or illness might help you sleep better at night.
Even if you’re just starting out in the career and have little assets or debts, income protection will allow you to safeguard your most significant asset: your capacity to earn and live a comfortable life through meaningful employment.
What is covered under income protection?
Income protection insurance ensures that you can pay your rent or mortgage and other everyday expenditures if you are unable to work due to injury, illness, or accident by paying up to 75 percent of your gross salaries for a maximum of two years (or until you reach the age of 60). Benefit payments are normally made monthly in arrears and continue for as long as you are Totally Disabled or Partially Disabled, as long as your Policy’s terms and conditions allow.
It’s crucial to understand, though, that what you’re insured for under income protection relies on the types of occurrences you might want to file a claim for. So, before you sign up for any kind of ‘living’ insurance, make sure you understand what kind of cover you require.
Check the fine print to make sure you understand what is and isn’t covered, as well as under what conditions.
How long do you need income protection for?
Whether or not you get one of the three types of so-called “living” insurance depends on your unique circumstances. However, presuming you’ve purchased cover, how do you know when to turn it off?
When the house is paid for and all school expenses are paid, this is a good time to cut back on ‘living’ insurance. You can technically keep your policy until the anniversary before your 65th birthday.
In practise, however, most people switch off their policies right before they need them the most. According to TAL study, the average age at which a person stops paying for one or more of three types of ‘living’ insurance policies – disability, critical illness/trauma, and income protection – is 45 years, while the average age at which a claim is filed is 46.5 years.
For anyone who has been servicing premiums for a long time, this is a terrible conclusion.
See also: 6 Tips For Staying Healthy With A Desk Job
So, if you like the concept of having some sort of income protection but aren’t sure how much or how long you’ll need it, you should seek professional financial counsel first.