Insurance is about managing risk. Your ability to earn an income is your greatest asset for most people. Just think about what you will earn over the next 10, 15 or 20 years, how does that compare to any assets you own?
Your income is what the lending institutions rely on when approving your loans. If something happens to you, and you’re unable to earn an income, you won’t be able to service your debts. The lender can then request the collateral asset against your loan — most likely your house. If you’re still living in it, then this is obviously a problem.
There are two types of income protection insurance:
- Agreed value — which pays a benefit agreed at the start of your policy and is not affected by any variations in your income
- Indemnity value — this is a less expensive option and your income is verified at the time you make a claim
With income protection, by paying a premium (usually a monthly fee) the insurance company takes on the burden of the risk of you not being able to pay your living expenses. Then if something does happen to you they will pay you a pre-agreed amount (usually up to 75% of your income) for a certain period of time.
Income protection is suitable for anyone from any occupation, generally up till age 65 (although it can go for longer), and is of particular importance for people who are self employed or small business owners. Certain things will influence the premium you pay, such as your age, behaviour (smoking) and your occupation (are you behind a desk or washing windows on a skyscraper). When choosing a policy you should consider the waiting period (the delay before you start getting payments), the benefit period (how long the payments continue for), and any additional benefits offered (such as nursing care).
Designed to cover the cost of living, Income Protection usually only pays up to 75% of your income and that is why it is important to consider Trauma and Total and Permanent Disability Insurance. It’s important to review your cover when your circumstances, and indeed when your income changes. Income Protection premiums are tax deductible which helps to reduce your tax.
There are other types of insurances for Life, Total and Permanent Disability and also Trauma. Talk to one of our Advisers to see what combination would be right for you, your family and your financial circumstances and objectives.