What is Income Protection?
Income Protection is known by a range of names including Salary Continuance Cover and Sickness and Accident Cover. The ability to generate an income is arguably a person’s biggest asset and Income Protection is an ongoing income policy designed to replace your income in the event of result of illness or injury and you are unable to work.
Income Protection is one of the broadest and most claimed on policies and will replace up to 75% of your income. Income Protection pays that benefit for the length of your disability or the expiry of the benefit period. When compared to lump sum policies, Income Protection can seem more complex; however the variables available allow a person to customise the policy to their specific circumstances.
There are a number of key terms and variables under an Income Protection policy that need to be considered when deciding what is appropriate to insure;
- Waiting Period – The waiting period is the length of time from the date of injury/illness that a person needs to be unable to work before benefits start to accrue. It can be considered similar to an ‘excess’ and there are a number waiting periods available from 14 days right up until 2 years. It is also possible to obtain an additional option that reduces the waiting period for accidents down to 3 days. To illustrate how the waiting period works for a person requiring 68 days off work and they have a 30 day wait;
- Benefit Period – the benefit period is the period that a person accrues and receives benefits. The benefit period also defines the extent that a person can claim per injury/illness. The most common options available are a 2 year, 5 year and an until age 65 benefit period. Insurers are also offering a benefit period to age 70 for white collar workers.
Those who are self-employed in small business can be said to have the greatest risk. With no sick pay/annual leave and in a lot of circumstances most cash flow being used in the business, interruptions to income due to illness or injury can have dire consequences. Insurer’s treat ‘insurable income’ slightly differently for the self-employed and rather than salary and wages, the insurers look at the level of net (after business expenses) income that person generates before tax. In a lot of circumstances also an insurer will allow an applicant to add back certain expenses like depreciation, donations and motor vehicle expenses to increase the monthly benefit available.
Like Trauma Cover, Income Protection policies vary greatly both in regards to their ‘core’ definitions like how the insurer deems you to unable to work, benefit offsets and waiting period requirements; to their ‘ancillary benefits’ like automatic payments for certain injuries, rehabilitation benefits and extra payments in certain circumstances. Good advice is paramount to ensure that you obtain a policy suited to your requirements.
Primoris Financial compares Income Protection policies from over 12 major Life Insurance companies and can assist getting comprehensive policies at competitive prices! Request a free Income Protection quote comparison today and protect your income!