Is income protection worth it?

What is income protection insurance?

While you may view your house or investments as important assets, it is actually your ability to earn an income that is your most valuable one. Have you ever considered what would happen if your salary stopped coming in, even for a short period of time? How would you make your mortgage or rental payments? Pay your children's school fees? Or even afford your regular living expenses?

Generally, income protection insurance can provide you with up to 70 per cent of your regular income in the event you cannot work for a particular reason, such as illness, injury or in some cases, needing to care for a sick family member. If you are weighing up whether it's worth having, just think about how you would cope financially if you didn't have it.

Savings may not be enough

Did you know that according to CANSTAR'S 2021 Consumer Pulse report, Aussies have a median amount of $5,000 saved? That's not a lot when an emergency savings fund should cover 3-6 months of household expenses if you were suddenly unable to work and earn a wage. Add up your monthly household expenses to get an idea of how much you would need to get by for 6 months and compare against your current savings. If the amount saved doesn't provide you  with a healthy financial buffer, income protection can be an added safety net should you be unable to work due to illness or injury.

Main benefits of income protection insurance

Generally, income protection insurance can provide you with up to 70 per cent of your regular income if you're unable to work due to an illness or an injury that is serious enough to stop you working. Monthly limits may apply and the amount of cover you're eligible for is normally dependent on your occupation. 

As well as providing you with regular payments, some other key benefits of income protection insurance  include:

• the policy can be adjusted to suit your circumstances
• some polices have optional extras, such as being able to take time off to care for a sick child
• your premiums may be tax deductible
• you may get coverage for redundancy.

It's important to check your insurer's product disclosure statement to understand what you're covered for, the relevant waiting periods and how to claim. 

What does income protection insurance cost? 

Your premiums are calculated based on a number of factors including age, gender, occupation, smoking status and the amount of cover you select. You'll usually pay less for cover if you're younger, healthier and don't partake in risky activities. Your gender also affects your premiums, which are generally higher for females.

There are ways you can reduce the cost of your premium by choosing a longer waiting period (the amount of time you wait before you're eligible to make a claim) and reducing the benefit period (the maximum length of time you can receive payments). Income protection insurance tax deductions could also help offset the costs of your policy. 

Protecting other parts of your life 

While it's important to protect your income, there are other types of insurance that should form part of your financial wellbeing plan. As we never know when we may have to deal with an unfortunate event, such as an unexpected death, having adequate levels of life insurance is critical. 

There are different types of life insurance that cover different life events:

• Life or term life insurance pays a lump sum if you die or are diagnosed with a terminal illness.
• Critical illness insurance pays a lump sum if you are diagnosed with one of a number of serious medical conditions, such as cancer or a heart attack.

You may need a combination of these products depending on your needs and existing financial resources. For instance, life insurance won't usually pay out if you stop work due to injury or illness and doesn't cover you for involuntary unemployment. Therefore, to be fully covered you could also take out critical illness or income protection insurance. 

Want to protect your income from the unexpected?  

We've partnered with Zurich Australia - one of Australia's largest and most experienced life insurers - to help you take care of yourself and the ones who rely on you.