Income Protection: What it is and how it helps you
Many might consider a house, a car or even savings as their greatest financial asset. More often than not, however, it’s your ability to earn income that’s greater than the others combined.
While many of us have insured our cars, houses and other possessions, surprisingly only 31% of Australians insure their greatest financial asset – the ability to earn income. Consider then that if 69% of people don’t protect their income, is income insurance really that useful? And if over two thirds of Australians aren’t protected, why should you be?
How Income Protection works
In short, if you or a partner were off work for a prolonged period of time and unable to support your current lifestyle and household expenses then Income Protection is going to be useful.
For many, however, the likelihood of having to use their income protection is not enough to assure them that the cover is worthwhile. Several other common perceptions also support this attitude and act as further barriers to taking out cover.
Why pay for something I might not use?
60% of working Australians will at some stage need to take a prolonged break from work as a result of illness or injury(1). There is a high likelihood that yourself or someone you know will be affected by being unable to work.
As with many other forms of insurance, Income Protection is in place for peace of mind in case the worst should happen. Six out of 10 Australians will be able to use the cover at some point in their working life.
But I think I have enough cover
Government schemes such as WorkCover are limited to only protecting you from accidents and illness that happen in the workplace. WorkCover claims only pay for expenses related to the injury or illness, not loss of income to cover additional household expenses such as the mortgage, bills and childcare needs.
But I can’t afford it
Income Protection can be tailored to suit your budget, and premiums are also usually tax-deductible.
For the 31% of Australians that have purchased Income Protection, there are several attitudes that provide insight into the value offered by income protection.
Depending on how your policy is structured, Income Protection can provide up to 75% of your usual salary in a monthly payment. This financial support enables you to say on top of household expenses in the event that you are suddenly unable to work.
For some, Income Protection is a useful addition to long-term financial planning, providing assurance that the goals for your financial portfolio can be met.
Income Protection can also be used to top up on existing insurance cover, giving you the confidence you have the right level of cover to meet your needs.
Yet, most importantly, in the event that you do find yourself unable to work, Income Protection provides you with options on how you allocate your income.
So if Income Protection sounds like something useful for you, it’s important to research and get expert advice on the options available to you. This will ensure that you get the right level of cover and benefits to suit your needs.
1source: TAL Facts of Life Study