Research commissioned by TAL in 2019 indicates that only approximately half of all Australians have some form of life insurance policy, with many remaining under-insured. As per the ATO, while the number of active life insurance policies is twice the number of working-aged Australians, this does not signify that most Australians have adequate insurance coverage. In fact, despite the significance of active policies, only about 52% of Australians hold some form of life insurance.

If you are considering the importance of income protection insurance, consider this scenario: You unexpectedly injure your back and require time to recover. Without income protection insurance, you are left without a paycheck during your recovery. Bills begin to pile up, and your savings rapidly deplete. Suddenly, you are juggling both health and financial stress. Income protection could have helped maintain financial stability while you focused on recuperating.

What Does Income Protection Insurance Cover?

Sometimes called a salary continuance insurance, income protection insurance is designed to provide you with a stream of continuance income if you can’t work for an extended period of time due an unexpected illness or injury.

Income protection insurance commonly provides a monthly benefit, a predetermined percentage of your pre-tax income, to assist with essential living costs while you recover. Depending on the specific policy, income protection policies can offer up to 70% of your pre-tax income during your claim.

Each policy has its own definition of partial or total disability that must be met before a claim can be submitted. It is important to review your insurer’s website or product disclosure statement (PDS) before committing to an income protection policy to guarantee that you obtain the desired coverage. Do not hesitate to consult with an insurance broker to explore the available options before making an investment.

What Is Excluded from Income Protection Insurance?

Depending on the type of policy you undertake, exclusions vary. However, some common exclusions include:

• Self-inflicted injuries
• Attempted suicide
• Drug usage
• Participation in illegal activities
• Pregnancy

However, these exclusions differ among providers. Some policies may have a narrower definition of exclusions, while others may be more extensive. It is always important to review the complete details of your policy before making an investment or filing a claim.

Contemplating if You Need Income Protection Insurance?

If you are self-employed, have dependents, or have debt, investing in an income protection insurance policy is a prudent choice.

Your insurer will typically require details such as your age, occupation, current income, medical history, lifestyle habits, and participation in high-risk hobbies to determine (a) their willingness to insure you, (b) the cost of your premiums, and (c) specific terms and conditions attached to your policy.

Generally, an indemnity policy will apply for new contracts after November 2021 as follows:

• An indemnity value policy, which insures you for a percentage of your salary at the time you make a claim. If your salary has decreased when you make the claim, you will receive a smaller monthly insurance payout.

Additionally, there is the option of choosing between stepped or level premiums.

• Stepped premiums are calculated based on your age. The cost of coverage is lower if you sign up when you are younger and increases as you age.
• Level premiums tend to be higher at the beginning of the policy, but changes to the cost are not based on your age, so changes are less significant over time.

It is important to consider your options carefully before making a decision. Making an incorrect decision or providing misleading information can impact your coverage.

Injured or Unwell? Income Protection Keeps You Covered

If unforeseen circumstances necessitate financial protection, regular benefit payments can alleviate some of the burden during your recovery. Additional benefits and considerations for investing in an income protection insurance policy include:

• Most policies offer a rehabilitation benefit (outside of super), collaborating with your medical practitioner to ensure you receive the optimal treatment.
• Most policies offer a recurrent disability benefit, eliminating the need for subsequent waiting periods.
• Some policies offer a death benefit, payable to your beneficiary in the event of your untimely demise while your policy remains active.
• Tax deductibility, enabling you to claim them during your tax return period.

Should you require dependable income protection insurance, consider collaborating with one of our specialist brokers at Morgan Insurance Brokers to select a plan tailored to your requirements.

Be prepared for unforeseen events. Contact us today.