If you were suddenly unable to work due to injury or illness would you still be able to cover your mortgage repayments? There is a lot of advice out there saying you should have up to 6 months of expenses in your savings accounts for situations like this when you are unable to work. Income protection provides an extra layer of security if something were to stop you from working while also taking some of the stress away so you can focus on getting better.
The Australian Institute of Health and Welfare reports that over a third of Australia households have a mortgage, so having some security and assurance that these repayments are being met is extremely important if you were unable to work. Income protection pays up to 85% of your pre-tax income for a specified period of time and is designed to replace the income based on your earnings in the 12 months prior to your illness or injury. Income protection insurance is paid out in monthly instalments which can be used to keep up to date with your mortgage repayments, but if you are looking for a lump sum payment, then a Total and Permanent Disability (TPD) insurance might be more suited to you.
Do I need Income Protection?
Income protection can be important if you:
- Are self employed or a small business owner. You may not have annual or sick leave available.
- Have family members or dependants that rely on the income you earn to support them.
- Have debts such as mortgage or student loans.
The best way to work out if you need income protection is to prepare a budget which will help you examine monthly expenses and the amount of income you will need to replace. You should also consider if you have TPD or trauma insurance that can also replace lost income and private health insurance should you need any medical treatment.
Choosing an income protection policy
There are quite a few things that you should consider when choosing an income protection policy including things such as whether they are indemnity or an agreed value policy? What the waiting period is for the policy? How long the benefit period is? Whether they are stepped or level premiums?
We understand there is a lot to get your head around and the process can be quite complex! Speaking to your financial planner can help identify the right policy for your personal situation. Our advisers at Financial Framework have a wealth of knowledge in the insurance space and our claims manager Christine is one of the best in the industry in ensuring you get the most out of your claim should you need it.
Get in touch today!