Explainer: Income Protection Insurance
Insurance for something you can’t see or touch, such as your income, may seem strange. But how would you pay your mortgage if you were unable to work?
When considering insurance, it’s common for people to pass it off as a pesky added fee involved in owning a car, running a business or protecting a house against damage. Income insurance, on first glance, can seem like another costly precaution that’s unlikely to prove useful.
But when you think about how your income facilitates you lifestyle, it’s often at the top of the list in regards to things that you can’t afford to lose. Cars and houses can be replaced, but losing an income, perhaps for life, could see both lost.
Income protection insurance covers salary loss due to injury or sickness. Unlike workers compensation, it applies to injury or sickness at any place or time. And, unlike government allowances, it pays in accordance to your earning capacity.
“If someone is injured under workers compensation, for the first few weeks they receive a higher rate, but then it drops down. Therefore, people’s standard way of living is sacrificed if they depend on this form of protection,” says Coverforce Executive General Manager Employee Benefits Matthew Crawford.
Income protection policies vary in regards to their terms and conditions, but they usually offer 75 per cent of gross wages for a maximum time period. It’s a form of insurance that is particularly important for people who have regular repayments to make against debts.
“The most important reason for income protection is when a person has a strong reliance on an income,” Crawford explains.
“When you have someone with financial responsibilities, like a family or a mortgage, that’s an important time for income protection.”
Having a majority of your current income insured against the possibility of being away from work helps you avoid defaulting on mortgage payments, personal loans or credit cards.
It can be the difference between continuing along within your current lifestyle following illness or accident, or being forced to dramatically change your lifestyle due to an inability to repay your debts.
“Most people these days have enough stress already, with the economy and the price of housing going up. Income protection gives that little bit of extra peace of mind. It works when you can’t work,” Crawford says.
Considering how you will pay your mortgage if you were away from work for a period is essential, and an MFAA Accredited Finance Broker can help you find the right insurance to help ensure your investment in property is protected.