Income Protection Insurance provides a monthly benefit to the person insured in the event that they are unable to work due to sickness, injury or accident.
Income protection will provide cover up to a maximum of 75% of your gross annual income. There is no specific list of events for which you can claim on income protection, the ability to claim is very broad. Essentially if you are unable to work due to sickness or accident you can claim. Note that income protection policies do not provide cover for redundancy.
It is important to note that income protection premiums are 100% tax deductible.
Credit protection insurance (also called consumer credit insurance) covers your credit card, home loan or personal loan debt and repayments in the event of your death, terminal illness, disablement or unemployment.
It is generally available with a mortgage, personal loan or credit card, is optional and in no way connected to mortgage insurance, which is usually compulsory if you have a home loan deposit of less than 20%.
It tends to be offered as a package, such as combined disablement and unemployment covers. If your claim is accepted, your debt is usually covered in the case of death or terminal illness and the repayments for disablement or unemployment.
However there are plenty of hidden catches and traps.
Some lenders promote credit protection heavily and it can be difficult to get out of.
Credit protection cover only applies if you are employed for a period of time before you become unemployed, so you cannot take out credit protection insurance while being unemployed.
There are also sometimes problems when lodging a claim as there are a number of forms that need to be completed and sometimes require a statement from your previous employer, which can be rather uncomfortable to obtain.
Lots of claims seem to get rejected much more than other types of insurance. This is largely due to the very tight exclusions in the contract.
Unfortunately the benefits of consumer credit insurance favour that of the insurance provider rather than the consumer.
While the benefits do differ, credit protection insurance is generally more expensive than income protection insurance or life insurance.
Be sure that you fully understand the Product Disclosure Statement of the insurance product and make sure that it offers adequate cover and also suits your needs.
If you want to find out who offers best life insurance and/or income protection insurance in Australia for your particular situation, please fill out the form on this page.