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What is income protection
insurance?
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Of the working
population, 1 in 6 men and 1 in 4
women are expected to suffer a
disability from the age of 35 to 65
that causes a loss of 6 months or
more work. Institute of Actuaries.
Table IAD 89-83. White collar males
and females.
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Income protection insurance provides
a monthly benefit where the insured
becomes unable to work due to
illness or injury. This monthly
benefit is designed to replace the
income lost, allowing the insured to
continue to make debt repayments and
pay for everyday living expenses.
Terms and conditions will apply to
the income protection cover, and
will be fully detailed in the
product disclosure statement.
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Why buy income protection?
Income protection will pay for the
expenses that continue even when
unable to work, including repayments
on home loans and personal loans,
house bills, children’s school
expenses and so on. In doing so it
provides financial security,
enabling the insured and their
family to maintain their lifestyle
in the event that the insured is not
able to work.
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How much cover is required?
The maximum monthly sum that can be
insured under an income protection
insurance policy is 75% of gross
wages.
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Factors to consider when deciding on
the income benefit to insure include
debt repayments that will need to be
made even if not working, as well as
everyday living expenses that will
need to be paid even if not working.
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unsure about the right amount of
cover, advice from a professional is
recommended. It is also recommended
that the monthly sum insured be
reviewed regularly, especially with
changing circumstances that may
effect whether the income protection
insured amount continues to be
sufficient.
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Features and options
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Most income protection policies will
offer a range of waiting periods
(that is, the duration before the
commencement of income benefits)
including 14 days, 30 days and 2
years. A range of benefit periods
(that is, the period that the income
benefit will be paid for) is also
typical, including for 2 years, 5
years or until age 65. The waiting
period and benefit period will
affect the policy premium.
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Taxation of income protection
A tax deduction can generally be
claimed on income protection
premiums paid.
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Benefit payments are treated as
income and are subject to tax.
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