Income protection insurance guards against loss of income in the event that a person working more than 25 hours per week contracts a long-term debilitating illness, e.g. glandular fever or has an accident that is not covered by workers’ compensation.

In this situation, life insurance will clearly be of no use. If there remains a real likelihood of the person returning to work at some stage in the future, then TPD will also be of no use. And finally, if the illness is not one of the 30 odd specified conditions under a trauma insurance policy (which glandular fever is not), then it too will be of no use.

This is where income protection insurance comes in. The bills will continue to arrive and any Centrelink benefits you are able to qualify for will not be enough. If you cannot imagine being able to survive on Centrelink benefits for six months or more, then you need income protection insurance.

Ask yourself what is more valuable, your house/car or your future earnings? Most of us will earn between $2 million and $4 million in accumulated earnings over our lifetimes. Why then do most people insure their house and car but not their income?

Income protection can be an expensive insurance. Just like TPD insurance, your ability to carry out your occupation will define whether a claim can be made. Age and occupation will therefore have a bearing on the monthly premium. In general terms, income protection is the most expensive of the four personal insurances. The main reason for this is two-fold. Firstly, the potential payout for an insurance company is significant should you be unable to work again indefinitely. The second reason is that, statistically, there is a greater likelihood that you will need income protection during your working life than the other three insurances.

Income protection insurance comes with a waiting period (the period of time that must first elapse before you can lodge a claim). You set your own waiting period which can range from 14 days to two years (the longer the waiting period, the lower the premium). Salaried employees may have a reasonable amount of accrued sick leave through work in which case you may wish to set a longer waiting period to make the monthly premiums more affordable.

When taking out an income protection policy, you can also set your own benefit period (the period of time the policy will pay you in the event of a long-term claim). Benefit period options usually range from two years to age 65. Again, the shorter the benefit period, the lower the monthly premium.

Income protection is available to almost anyone who is working at least 25 hours a week. Premiums are affordable and tax-deductible.

At the end of the day, individuals must decide whether to insure their income – or not. The following graphic demonstrates the two options we are all faced with:

In option 1, you can choose not to insure. You will retain 100% of your income now, but lose all of it if you cannot work due to sickness or accident.

In option 2, you can choose to insure. You will lose 2% of your income now in order to pay for the insurance, but then retain 75% of your income if you cannot work due to sickness or accident.

Please note that the 2% premium estimate is an average. The premium can be more or less depending on a persons age, occupation and health.

To find out how DBT can help protect you, contact us today.