Income Protection Insurance (Disability Income Protection)
By Sandy Naidu | April 28, 2008
Ever wondered what you would do if you have an injury or sickness as result of which you have to quit your work (either for a few years or even worse - forever)….Scary thought….How would you pay your mortgage, car loan, bills etc….Very Scary - But the truth of the matter is, it could happen to anyone - This is where Income Protection Insurance comes into play. A lot of us have heard of life insurance but very few of us have heard of Income Protection Insurance. In my view Income protection is probably even more important than life insurance - income protection insurance ensures that your ‘living’ expenses are met whilst life insurance is more of a payout to your dependents after your death.
What Is Income Protection Insurance
This insurance pays part of your salary if you have to quit work due to sickness or injury. Most of the policies offer up to 75% of your gross income. The payments start kicking in after the waiting period (usually around 30 days after the injury). This insurance is also called ‘ Trauma Cover’ or ‘Disability Insurance’.
Read The Fine Print
Like all insurance policies before you sign up read the fine print and find out what exactly you are covered for. Some key points to look into:
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Keep Them On The Rise: Opt for a policy which offers index-linked premiums - This means your benefit if and when you receive will keep rising with inflation. You don’t wont to end up with the same payout for the next 10 years or more. |
Permanent / Partial: In addition to a number of factors, the premiums you pay also depends on whether you want to receive the benefits only for permanent disability or for both permanent and partial disability…May be with partial disability you can work part time. And this might affect what you get paid by the insurer. Find out what benefit you will receive if you are able to work part-time.
For How Long: Look into for how long you will get the benefits…Some can stop after 2 years and some will go on until you reach your retirement.
What Is The Wait: Check the waiting period - how long do you have to wait before the first benefit payment starts….Usually between 30 to 90 days.
Read The Offset Clauses With A Magnifying Glass: There can be clauses which will reduce your payments or worse still exempt you from all payments - maybe if you will receive disability payments from Centrelink your payments from the policy might reduce. Whilst this is not a bad thing, its just that you need to be aware of it…
Super Contributions: Some will even pay a regular contribution into you super…Check if yours does.
Broad Or Narrow: Assume you have an injury and can’t do your usual job - but you can do other jobs…What happens then - some cover even for this scenario but some don’t….Find out what yours does.
In Between Jobs: Find out what happens if you are in between jobs when the injury occurs.
Accident Or Sickness: Find out if you are covered only for accidents or sickness or for both…If you are covered for sickness makes sure to check what happens if it is a pre existing condition….
Putting Greed Aside: The more the options / features the more the premium….Nothing comes for free…Having said that you still have to make sure that you understand what you are getting into - some insurers might not provide the features which others provide by default (or at no cost)…So research, analyse, compare and then sign up.
The Price: The premium you pay depends on the features / benefits, your gender, your occupation and your health condition.
You Might Think You Are Already Covered
Some of the common misconceptions which leads people to believe that they are already covered for this insurance are:
Super Cover: A lot of super funds have this income protection insurance - But they cover only for a maximum of two years - Also the dollar benefit you receive might be much less than what you need….
Workers Compensation: This is only when you meet with an accident at work…Whereas Income Protection covers you for accidents outside work as well.
Sick Leave: Well lot of organizations have sick leave but its unlikely for the leave to be more than 10 days in a year…This insurance covers you for a much more
More Than One Version
Insurers normally offer more than one version of this insurance. One policy might cover just the basics…The premium policy might cover for things like accommodation, travel (if injured overseas), pregnancy, nursing care etc…There is also usually a special version for sole traders and self employed - this version will cover the fixed costs of maintaining the business when you cannot perform due to a disability.
What you pick depends on what your needs are and how much you are willing to pay. And finally here is some good news - The premiums are all tax deductible.
Have you got this insurance…Any hiccups while signing up…And if you are currently receiving payments from this insurance, let us know if there are any pitfalls we need to watch out for….
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May 7th, 2008 at 1:18 am
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