What Is Income Protection Insurance?

If you are in a full-time, part-time or self-employed role, income protection insurance is something to think about. Income protection insurance can pay a portion of your earnings if you are not able to work due to illness or injury. There are many different things to consider if you are thinking of applying for income protection. Here’s some food for thought.

The period of time for which you receive income protection payments depends on the agreement between yourself and the insurance provider. These agreements could be short-to-medium term, for example for one to five years. They could also be in place for a lot longer, such as up to your 65th birthday. The length of time will be reflected on the amount of the payments you are willing to make. Different types of income protection insurance exist for people at different stages of their lives. A young single person may not need to think of the financial strain on his or her family should something happen. Income protection insurance in the form of critical illness insurance could be something they think about. This type of cover will help to meet the needs of the rent, mortgage and other day-to-day bills that still need to be paid if they are sick or injured.

Indemnity Vs. Agreed Value

Income protection insurance normally comes in two different kinds: indemnity and agreed value. Indemnity cover can be provided by your super fund with the premiums taken out of the account.

Agreed value: These tend to be a bit dearer than indemnity cover. It pays out the amount you agreed to when first signing on the dotted line. The amount paid out does not change even if your salary does.

Indemnity: More people tend to opt for this kind of cover and it can be less expensive. Your earnings are taken into account when making a claim and the pay-out amount is adjusted accordingly. Not as flexible as agreed value cover.

How Much Income Protection Is Enough?

This depends on how much you earn and how much of your salary you want to protect. Income protection insurance tends to cover up to 75 per cent of your income. Things to think about include your regular mortgage or rental payments. Also, do you need to provide for your partner and/or kids? What about any assets and investments? Income protection insurance ensures you have some type of money coming in if you are temporarily not able to work.

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How Much Does Income Protection Cost?

Your income protection provider will take a few different things into account. Premiums are reflected on how old you are, gender, general health and any pre-existing ailments, whether you smoke or not as well as what you do for a living.

Steeped Vs. Level Premiums

Steeped: This kind of premium may start out cheaper, but it will increase over time.

Level: This kind of income protection won’t see any major changes to premium level. However, the cost will depend on how old you are upon application. They can start as being dearer than steeped premium, but may become cheaper over the 10-15 years if you decide to stick with the same income protection provider.

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