There’s been a bit of dust kicked up recently about the NSW government’s proposed scheme to alter the compulsory third party insurance system, a move which they say will better serve the victims of transport accidents but that some claim will force motorists to take out independent income protection insurance if they hope to maintain their income following a serious accident.
Whether or not anything comes of all the speculation, it’s a good opportunity to take a closer look at income protection insurance, what it is, who needs it and how to find the right policy to suit your needs.
What is Income Protection?
Income Protection cover provides an ongoing income stream of up to around 75% of your regular pay packet if you are unable to work due to serious illness or injury. Unlike trauma or term life insurance which pay out a lump sum, income insurance continues to pay you a regular stipend until you are deemed fit to return to work or for a period of between 1-5 years, depending on the terms of your policy. This means you can keep paying bills like your mortgage, household expenses and school fees even if you’re laid up for an extended period of time, allowing you to focus on getting back on your feet without the added stress of bills piling up. Unlike workers compensation, you don’t need to have injured yourself at work to receive benefits.
Who Needs It?
Pretty much anyone who relies on a regular income to maintain their lifestyle. Whether you work full-time, part-time or are self-employed, income protection insurance can help reduce the trauma and long-term impact of a serious accident or illness and, given it alleviates financial stress and provides income to cover medical costs, can help you recover faster and get back to your full earning potential.
Good To Know
A couple of features that are good to know if you’re considering purchasing income insurance:
It’s usually tax deductible – which helps to offset the expense if you’re not sure you can afford it.
There are two types of policy, ‘Agreed Value’ and ‘Indemnity.’ Like car insurance, an agreed value policy will pay out a fixed amount that you and your insurer have agreed on prior to your claim. These policies are generally more expensive but some prefer the peace-of-mind of knowing exactly how much they can expect to receive. Cheaper and more popular, indemnity insurance takes into account a number of factors at the time of your claim like your last 12 months’ income, any leave you may have planned and the market value of your products and services before determining how much your benefit will be.
In most cases, there is a 30-90 day waiting period for payments. This is pretty much universal across all providers so you need to prepared to cover your own expenses during this period.
How Do I Find The Right Cover?
As with most insurance products, every policy is different and it’s worth shopping around before you commit. Things to consider include the types of illness and injury covered, what percentage of your regular income will be paid, how long the policy will continue to pay out and any waiting periods. If you’re not sure where to start, consider employing the services of a Financial Planner – it’s free and could save you a significant amount of time, money and stress.