Income protection insurance provides you with a lump-sum payment should you be injured (on or off the job) or fall ill. With income protection insurance, you can replace your lost paychecks and protect both yourself and your dependents from temporary and long-term financial hardships. If you’re thinking about applying for an income protection package, keep reading.
Income protection insurance offers 85% of your income for a certain amount of time if you can’t work due to partial or total disability. It replaces your employee or self-employed income based on a calculation of your annual earnings totaled from 12 months before the incident.
Each income protection service policy decides what constitutes a full or partial disability, so check the insurance product disclosure statement before purchasing.
Anyone who’s employed and receiving consistent income could benefit from income protection insurance. However, that can be much too vague for many.
After all, who doesn’t need a regular income to survive other than born millionaires? In this case, buying into income protection insurance may become more critical for people in the following categories:
To understand how much protection you’ll need, prepare a budget for your expenses. It’s important to know how much you pay for necessities each month so you have an idea of the amount you want to be covered for.
If you have total or permanent disability insurance or private health insurance covering medical leave, factor this into your policy amount.
Here are a four things you should consider when choosing the proper protection policy:
Most income protection policies are either:
Some insurance companies have stopped offering the Agreed Value policy, likely because of the large influx of independent contractors.
If you are a freelancer or small business owner, try to locate an insurance company that offers this policy as it’s better suited for your type of profession.
An insurance’s benefit period indicates how long your monthly payments will last if you cannot work.
Most policies last 2-5 years or up to a specific age. The longer your benefit period lasts, the longer you’ll be covered, but you’ll receive more expensive monthly payments.
The waiting period for insurance determines how long you’ll wait until payments start to kick in. Most policies ask you to wait 14 days, but you can be asked to wait upwards of 2 years.
To be eligible for payments, you still need to be unable to work by the start of your waiting period.
Since you can’t guarantee you’ll stay healthy for the majority of your life, a level premium package tends to be cheaper in the long run unless you cash out on your insurance sooner.
First, review if you have income protection insurance through your super fund. If you don’t have a super fund or you aren’t covered, you can buy this insurance from a financial adviser, insurance broker, or insurance company. When discussing plans, disclose your:
From this information, your insurance will be able to decide how much your premiums will be and the terms and conditions of your policy. They may even decide not to insure you at all.
By Jeff Smores
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Insurance Resources
Related Articles
Why Income Protection Is Important For Small Business Owners
by Team ZenBusiness, on December 18, 2024
Business Insurance Guide
by Team ZenBusiness, on December 17, 2024
E & O Insurance For Freelancers, Independent Contractors, And Entrepreneurs
by Team ZenBusiness, on November 22, 2024
Disability Insurance for the Self-Employed
by Team ZenBusiness, on December 04, 2024
What Is Income Tax?
by Team ZenBusiness, on October 29, 2024
Start Your LLC Today