Income protection insurance pays you a benefit in case that you can’t work to earn your normal income due to illness or injury. Is this insurance worth having, what do you will need to keep an eye out for and how do you find the best value for money?
Undeniably, most people’s most precious asset is their ability to earn an income. The aggregate current value of a normal professional’s earnings earnings from age 25 through to age 60 is estimated to be over $3.5 million (i.e. add up after tax earnings and express it in today’s dollars that excludes inflation)! I’m confident you agree that this can be a very valuable asset.
The interesting thing is that even though the most individuals insure their car against damage or loss, significantly fewer people insure their earnings. If your uninsured automobile were destroyed, it may take you two or three years to recover financially. But, compare this to losing your income for a protracted period.
While we hope the odds of losing our capacity to make an income for a protracted period is extremely low, the monetary effect of it happening is massive.
The overriding concern or threat is long-term incapacity. That is, in case you broke your leg and could not work for eight months, financially, you’d likely recover in a relatively brief period of time — you finally have some economies, sick leave, annual leave and family to help. But if you’re involved in a car accident and could not work for another seven decades, it’s very probable that this event would put a significant dent in your budget. Long-term incapacity has a serious financial impact — we do not have to be overly concerned about short-term incapacity.
Most financial plans are dependent upon our capacity to contribute a regular amount from income towards our investments. Thus, this is a key and fundamental risk that has to be considered. You can calculate how much you need coverwise with iSelect’s income protection insurance calculator.
Key features of income protection insurance to Know about
Income protection offers cover in case you can’t perform your regular occupation because of illness or injury. Income protection policies generally pay a monthly benefit for a particular period of time — known as the’benefit period’ — usually until age 65 (although pay inside often only pays a two-year advantage ). Importantly, income protection doesn’t cover you for involuntary unemployment (for example, loss of job or redundancy).
The payment of an income protection benefit lets you continue to afford to cover living expenses and financial obligations, and you have the ability to cover up to 75 percent of your gross income. (Providers restrict coverage to this amount to give a financial incentive for individuals to recover and go back to work.)
Most income protection policies will have a’waiting period’, that’s the amount of time you will need to be incapacitated for till it is possible to claim a benefit.