We almost take for granted, the routine of being able to wake up every day, work and earn a liveable wage. Many of us are so engrossed into the business of living that we barely stop to pause and contemplate about a future when we will no longer be able to work due to an illness, an injury or simply because our skills will be obsolete.
For many Australians, that future often arrives pretty quickly due to a variety of health problems such as depression and back pains which hamper their ability to work at their optimal best. The best protection against such an eventuality is usually through an income protection insurance policy.
The Income Protection Insurance
It is probably one of the most underrated insurance policies out there. Most people have an optimistic view of life. We don’t imagine a future where we will no longer be able to work and sustain ourselves. We assume that we are always going to be strong, healthy, skilled and productive but that is not always the case. So while people will take a health insurance, property insurance, travel insurance or car insurance policy, we barely think about the need to insure our income for the uncertain future.
In fact, many people only get to think about the need to insure their incomes after they fall sick or suffer a potentially incapacitating episode that puts them “out of commission”. But by then, it will obviously be too late and you will have to get do with a lifestyle where your working and earning potential is severely diminished. That will have a spill over on your quality of life.
The cost of sickness or redundancy
You might have built a handsome cache in your saving account but it will not stand up to the ravages of sickness or a debilitating condition. Living costs are only manageable when you have money flowing into your account on regular basis. If you have to dip into your savings to finance your daily lifestyle including expenses such as insurance, mortgage and utility bills, you are going to wipe these out pretty fast and before you know it, you will be selling your possessions and borrowing heavily from friends just to keep up with the bills. This is where income protection comes in. It provides you with a soft cushion so to speak in the event of any financial shocks arising out of your incapacitation or sickness that may render you unemployable and without a regular income.
Who Should Buy Income Protection Insurance?
Anyone who generates their own income would be an ideal candidate for an income protection insurance policy. That can include the whole gamut of the self employed, small business owners or even someone relying on the sharing economy or the gig economy. You can purchase a policy that can cover up to 75% of your income over certain duration of time. The gig economy portal Airtasker is already offering its users an optional income protection insurance plans that gig workers can take advantage of to protect their incomes.
How do you choose the perfect income protection policy cover for your needs?
The key considerations to factor in when shopping for income protection insurance include the amount of income that you wish to protect, the time period over which you want the income to be protected and whether you will choose a stepped or level policy. These factors vary from one insurer to another so you need to pay close attention to each insurer’s product offering when shopping for the perfect policy.
The other key item to factor in is the waiting period from the time you are unable to work to the time when you begin getting the insurance benefits in the event of a claim. The waiting period should be selected on the basis of your usual work-leave balances. How long will these last you before you run out of cash to sustain yourself? That should inform your choice of a waiting period.
Look out also for the arrangements available for income protection insurance premium payments. Will it be weekly, fortnightly, monthly or via an annual direct debit? That is an arrangement that must align with your financial institution’s rules.
You can also explore the options available in a superannuation fund. There are funds that offer contributors an income protection insurance policy cover where the premium payments are deducted from the superannuation account.
Does an income protection insurance policy sound like something you would wish to explore as a hedge against a possible loss of future earnings? An accountant Melbourne professional can help you explore reasonable policy covers that will align with your financial situation.