What is income protection?
Income protection insurance substitutes the income lost through your inability to work due to injury or sickness. It provides you with a regular monthly payment for a specified period to replace a proportion of the taxable income you’d usually earn from your primary occupation. Many income protection policies will cover up to 75% of your salary if you are totally or partially disabled.
What do I mean by ‘disabled’?
Disability: due to sickness or injury you are:
- Unable to perform all the important income producing duties of your primary occupation;
- Not working (whether remunerated or not); and
- Under care, treatment, and following the advice of a registered doctor.
If you are capable of working part-time in your primary occupation or if you are working in any capacity, you would not be considered disabled. ‘Primary occupation’ is the occupation in which you were mainly engaged prior to become disabled.
Why should you have income protection?
Income protection cover is an important consideration for anyone who relies on income. It is beneficial towards self-employed people, small business owners or professionals whose business relies heavily on their ability to work. Financial security and peace of mind if you can’t work due to sickness or injury. It can provide valuable financial support which lets you focus on getting well again.
Why you might like to consider income protection?
- Income protection insurance should be considered by those who rely on an income for daily life
- Have bills, credit card, rent or a mortgage to pay
- Want extra security for you or your family
- Maintain your lifestyle regardless of what happens
It gives you the financial freedom to focus on your recovery or treatment, without worrying about regular expenses
Choosing an income protection policy
Each income protection policy has its own definition of disability and range of benefits. Income protection usually offers cover for up to 75% of your gross wages for a maximum time period
What are waiting periods and will your income protection policy have one?
The ‘waiting period’ is the time between you becoming unable to work and receiving your first income protection payment. Different income protection insurance may allow you to choose a waiting period between fourteen days and two years. Generally, a shorter waiting period means a higher premium.
What are benefit periods?
The benefit period is the period during which you receive your income protection payments. Different income protection covers will have different benefit periods which generally range from a two or five year benefit period or up to age 70 for some occupations.
Agreed value and indemnity contracts?
Insurers may provide the option of an agreed value contract or an indemnity contract. An agreed value contract usually means that the monthly payment stipulated in your policy will be the amount you receive if you make a claim. An indemnity contract means the monthly payment will be assessed when you make a claim. Careful consideration should be taken as to which contract you are after.
Making a claim
If you need to make a claim on your income protection policy, you will need to provide evidence of your illness or injury. You should ask your insurer exactly what they need from you so your claim gets processed as quickly as possible with no confusion. The income protection payments you receive from a successful claim will be for the period you are unable to work, in line with the policy.