Most Australians would agree that protecting their income is a good idea, but with the rising cost of living, is it worth having to pay yet another insurance premium?
Insurance is one of those things that we understand we need, but generally don’t like paying. Insuring your house or car is an easy decision, but making the decision to insure your income is a little more difficult.
In this guide we will take a look at what income protection is and how it can help you, and ultimately we will consider whether or not you should take out a policy or save your money.
What Is Income Protection?
Before we go any further it is important to understand exactly what income protection is and how it works.
An income protection policy is designed to replace your income whilst you are unable to work due to illness or injury. The policy will generally cover up to 75% of your usual income.
Each policy will have a waiting period, a benefit period and a benefit amount. The waiting period is the amount of time you must be unable to work for before claiming, the benefit period is the amount of time you will be paid for, and the benefit amount is the monthly amount you will receive.
A typical policy may have a waiting period of 30 days, a benefit period of 5 years and a benefit amount of $5,000 for example. This means that after 30 days away from work you will receive $5,000 each month for 5 years or until you are able to return to work if sooner.
Does It Actually Work?
Income protection helps tens of thousands of Australians every year, with millions of dollars paid each day to Aussie families via their income protection policies.
In the latest claims report issued by The Risk Store, which covers the insurance claims statistics for eleven of Australia’s largest insurers, it was revealed that over $1 billion was paid to more than 37,000 Australians through their income protection policies in 2010 alone.
Those figures equate to nearly $3 million per day being paid to policy holders, with an average claim size of around $27,000.
If the billion dollars had not been distributed to these Australians who could not work due to injury or illness, many of them would have likely suffered financial hardship and fallen behind on their mortgages and other debts.
Is It Good Value?
One of the great things about income protection is that you can tailor it to suit your needs and your budget.
It would be misleading to say that income protection is cheap, however you can play around with the options to create a policy that will be affordable for you in the long term.
Whether or not it provides good value depends on what value you place on peace of mind. If you never claim on your policy you could argue that it is not good value, however many people agree that the value comes with the peace of mind knowing that they and their families are protected.
Should You Have Income Protection?
Ask yourself this. If you could not work for a period of time, how would you maintain the mortgage or the rent? How would you keep food on the table for your family? How would you meet the rest of your bills and expenses for a number of months or even years?
If you don’t know the answers to these questions, then you should at least consider an income protection policy.