We happily insure our homes, our vehicles, even our smartphones. But have you considered how your family’s lifestyle would be impacted if one of the breadwinners was suddenly unable to earn an income due to injury or illness?
The idea of insuring against loss of income is one that has clear value. But many of us neglect to insure our most valuable asset – our income. Income protection could be the answer – so how does it work?
Australians spend more protecting our cars than our income
Around 58 %1 of Australians aren’t sure what income protection is, or what it covers. Considering it’s what we live on, that’s a concerning statistic.
What’s more of a concern is that we spend more on protecting our cars than our income. According to Canstar, 20212, Australians are paying on average $2000 per annum to insure their cars, compared to Australian average income protection costs3 of $774 for a monthly benefit of $3,125.
How does income protection work and why do you need it?
In a nutshell, income protection insurance will pay you a percentage of your income, for an agreed time, if you have to stop work or you need to work less, due to injury or illness.
How much does it cover?
Income protection policies purchased prior to October 2021 typically cover up to 75% of your salary earnings (or, if you’re self-employed, generally up to 75% of the business profits you’ve generated) until you can work again.
Changes came into effect in October 2021 after which new income protection policies purchased cap the maximum income you can receive from all sources at 90% for the first 6 months and then 70% for all subsequent periods.
Older policies may be affected if an increase in cover is required, so it’s worth checking with your financial planner.
What are you covered for?
How and when you’re paid an income
You can save on tax with income protection
So is income protection insurance right for you?
3 https://www.canstar.com.au/life-insurance/income-protection-insurance/cost-of-income-protection-insurance/ based on accountant average male, female smoker and non smoker
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