Is Income Protection Insurance Worth It? Some of the Pros and Cons
It’s a highly debated topic these days. Should you, or shouldn’t you, get Income Protection Insurance? Does it differ that much from other types of insurance? Find out why it might be the right move for you.
Let’s start by answering the following question: What is Income Protection Insurance?
Income Protection is a type of insurance that can protect a percentage of your income for a period of time, whilst you can’t work due to an accident or illness.
Think of it as a replacement for some of your salary when you can’t perform your job or get a new one as a result of not being able to work.
Depending on the insurer and your policy, the amount covered is likely to differ. Similarly, the length of time during which a benefit will be paid whilst you are unable to work – often known as the “benefit period” – is also likely to vary. Typically, you can elect from a choice of benefit periods when you take out cover (eg. 2 years, 5 years or to age 65).
If you want to protect some of your income from unforeseen sickness and injury events, Income Protection might make sense for you. This may also depend on whether you work in one of the occupational ranges approved by the insurance companies.
Income Protection can cover many expenses. Depending on the policy, it may cover more than just part of your salary. For example, some policies provide for a contribution towards rehabilitation or re-training expenses. That’s not to say that there can’t be some drawbacks too, in some situations. For a better understanding of the risk vs. reward debate, check out some of the pros and cons.
Like any other type of financial product, you may need to consider both sides before making a decision and take time to consider how the product is relevant for your own needs and circumstances.
Pro #1 – You Have Less Stress
One of the biggest benefits of Income Protection Insurance is being able to focus more on yourself. What if you didn’t have to worry about your expenses if an illness or injury should happen to you and you’re unable to continue working for a period? Doesn’t it sound like a less stressful situation to be in?
It may ease your mental state to know that you can still help pay your bills and provide for your family.
Pro #2 – Income Protection Can Cover a Portion of Your Income
No insurer will pay you your entire salary. But you can typically get cover for up to 70% of your income (up to a certain monthly limit). For most people, that’s enough to cover day-to-day expenses.
Pro #3 – There Are Several ‘Benefit Periods’ Available
Most companies offer a range of Income Protection cover options to accommodate a broad customer base. For example, you can opt for shorter-term coverage that only pays out for periods of two years or less (as long as you’re still unable to work during that time).
Other plans may allow you to pay for longer-term protection. This means that you may be able to receive monthly payments until a certain age, such as up until age 65 (or until you can get back to work, if that’s earlier).
Pro #4 – Income Protection Can Cover the Cost of Rehabilitation If You Injure Yourself
When asking for an Income Protection quote, find out which rehabilitation expenses are covered under the policy terms you are considering. It’s not uncommon for your Income Protection to help cover some rehabilitation expenses. But, typically, the types of rehabilitation expenses which tend to be covered by health insurance policies are not able to be provided under Income Protection cover.
Pro #5 – You Can Use a Longer Waiting Period to Reduce Your Premiums
You may worry about high Income Protection policy premiums. Most types of insurance have a base policy rate together with an additional premium component based on various factors, but you can reduce your Income Protection premiums in various ways.
For instance, you can opt for a longer waiting period. The waiting period is the amount of time you have to wait whilst you are unable to work, before you start receiving payments. This may be as long as three months, in some cases.
Typically, insurers lower premiums for customers who opt to wait longer before they can commence to receive claim payments. This may work to your advantage, especially if you have savings that you can rely on should you be unable to work.
Con #1 – Having a Pre-Existing Medical Condition Can Raise Your Premiums
Pre-existing medical conditions can affect your Income Protection premiums. For example, conditions that affect your ability to work in the long run can raise your premiums. The same thing happens with your line of work. If you have a high-stress or dangerous occupation, insurers may raise your premiums. This can happen because you have a higher chance of needing to make a claim as a result of being unable to work due to illness or injury.
Con #2 – Your Policy May Have Exclusions
Income Protection insurance companies may also have specific exclusions in their policies.
Generally, exclusions refer to high-risk activities. For example, an insurer may deny your claim if you can’t work due to drug or alcohol abuse if the policy contains an exclusion about this.
Taking out life insurance may be one of the most important financial decisions you can make. To find out more or get a quote, call a NobleOak Life Australian-based insurance specialist on 1300 014 494 or go online for a no-obligation quote.
This is general information only and does not take into consideration your individual circumstances, objectives, financial situation, or needs.