Is your ability to work adequately protected?
Is your ability to work adequately protected?
While it’s easy to be cynical about ‘insurers’ following banking Royal Commission findings of ‘unconscionable’ sales conduct, there are times when adequate income protection probably makes perfect sense.
If you’re mid-career with a young family, a hefty home loan, and private school fees to cover, then knowing you can maintain your family’s lifestyle – should you need to be temporarily off work through injury or illness – may help you sleep a lot easier at night.
However, even if you’re just starting out in the workforce, and have little in the way of assets or debts, income protection will also allow you to protect your most valuable asset – namely you’re ability to earn and living through gainful employment.
What will income protection cover?
By paying up to 75 percent of your gross wages for a maximum of two years (or up to age 60), income protection insurance ensures you can continue paying your rent or mortgage and everyday expenses in the event that you’re unable to work due to injury, illness or accident. Benefit payments are typically made monthly in arrears and continue for as long as you are Totally Disabled or Partially Disabled in accordance with the terms and conditions of your Policy.
However, it’s important to remember that what you’re actually covered for under income protection depends on the types of events you may potentially wish to claim against. So before signing up for any kind of ‘living’ insurance, ensure you know what type of cover you need.
Equally important, check the small print so that you clearly understand what is and isn’t covered and under what criteria.
How long should you have income protection?
Whether you do or don’t take out one of the three forms of so called ‘living’ insurance cover depends on your own personal circumstances. However, assuming have taken out some form of cover, how do you know when to turn it off?
Trigger points for cutting back on ‘living’ insurance would typically be once the house is paid off, and all school fees are done. Technically you’re able to let your policy run until the anniversary prior to your 65th birthday.
However, in practise most people turn their policies off just before they need them the most. According to research by life insurer TAL, the average age a person discontinues one or more of three types of ‘living’ insurance policies – disability, critical illness/trauma and income protection – is age 45 years, while the average age for a claim is 46.5 years.
That’s a harsh outcome for anyone who’s been servicing premiums for many years.
So if you like the idea of having some form of income protection, but don’t how much or for how long, then you might want to consider seeking professional financial advice before doing anything.
