Income protection - an overlooked insurance option

It should be clear to every business that its most important assets are not the latest super whiz-bang piece of equipment but its people.

While it may be considered straightforward, income insurance can vary to suit needs and budgets.

Your greatest financial asset is most likely your ability to earn an income. However, while the over whelming majority of people insure their homes, their cars, and valuable possessions few even consider income insurance. If you get sick or have had an accident or were unable to work how would you pay your mortgage? Feed the family and generally have enough income to survive.

For some people the answer may be simple - they have enough assets/ or savings.

To continue to support their needs, their superannuation may include salary continuance that pays an income while they are out of work due to illness or injury. If they suffer a work related injury or disease they will be protected by work cover. However for many of us if we don't work we have no income. When all else fails you may be eligible for social security benefits but will this be enough to meet your needs?

Income protection insurance pays you an amount of money usually, monthly if you are unable to work because of sickness or injury. It can provide security.

However, as with all insurance products you need to consider whether you actually need it and if you do you need to insure you get the right amount of cover at the right price.

Everyone who earns employment income should consider how best to protect it. The decision to have or not to have income protection insurance will depend on your financial situation now and what is likely in the future, your employment and remuneration conditions and your level of income, earning assets, your superannuation scheme and your occupation.

People who are self employed, in particular, may be putting themselves at financial risk by not having income protection insurance. If you are the business and you are unable to work, what income protection is available to you?

If income protection insurance is for you, which policy should you choose?

For example:

  • Agreed-value policy or an indemnity policy? With an agreed value policy, you prove your income up front and insure to receive a set amount. The advantage is that you know what you will receive, regardless of changes in your income. The disadvantage is that these policies cost more. With an indemnity policy, you are insured for what you say you earn, but if you make a claim you have to verify your income.
  • A basic policy or pay for extras? The basic version will give you income payments only. Extras, at a price, include paying for nursing care or receiving payments immediately rather than waiting for weeks, months or even years before payment begins.

How Much Will I Get?

Generally it is recommended that you cover up to 75% of your gross annual income through income protection insurance. If you decide to purchase a policy, you will need to weigh up the regular financial commitments you'll be likely to face, in order to determine exactly how much income you should apply for.

With a wide variety of insurance companies associated with Rate Detective, our experts will be able to customize the best and most suitable insurance policies to meet the each individual's lifestyles. A financial planner can take into account your personal circumstances and help you make fully informed choices.

And more! Enquire now and you'll receive 20% cashback for your first year's insurance premiums! This offer valid for Rate Detective clients only and you will not receive it by going through the insurance companies yourself.

Published on July 7-st, 2008 in Financial Planning
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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