If you are injured and are unable to continue working, income protection insurance will enable you to pay debts and maintain an adequate standard of living. With an unemployment income protection insurance policy behind you, at least when it comes to financial matters such as your mortgage and other payments there will not be a problem.
Income protection insurance is a type of health insurance that compensates someone for part of the income that they lose because of illness or injury that prevents them from working.
Income protection insurance pays up to 85% of your pre-tax income for a specified time if you’re unable to work due to partial or total disability. It is designed to replace the income based on your annual earnings in the 12 months prior to your illness or injury.
Each income protection policy has its own definition of partial or total disability that must be met before a claim is made.
To work out how much income protection you need, prepare a budget. This will help you see your monthly expenses and the income you’ll need to replace. You may want to factor in making payments to your super as well.
When you buy an income protection policy, you agree to pay monthly (your insurance ‘premiums’) in return for a tax-free monthly payment (known as the ‘benefit’) if you need to claim. Before starting to receive your income protection payments, there’s usually what’s known as a ‘waiting period’ – or ‘deferred period’. This means your payments don’t start as soon as you become unable to work, but after an agreed period of time.