Protect your ability to earn income

An illness or injury can keep you from working and earning. Are you doing enough to protect your income if you’re unable to work?

Your ability to earn an income is usually one of your biggest assets, so it’s important to protect it. You may get help from a worker’s compensation payout or personal savings if you become unable to work due to illness or injury. But they’re likely to only cover nominal living expenses. How are you going to service your debts, and pay medical bills or your children’s school fees?

Taking out an income protection (IP) plan may help provide peace of mind that you’ll be able to meet your financial obligations and focus on recovering.

IP cover may provide a monthly income while you’re unable to work as a result of illness or injury. It typically replaces up to 75 per cent of your income for a set period of time.
When looking to take out an IP plan, it’s important to consider:

• the period of time you’re willing to wait before payments start
• the length of time that you will receive payments for.

These factors may affect your premiums and benefits.

Standalone cover or through super?

You may get your IP cover through your superannuation fund or by buying a standalone plan outside your super. Taking out a policy through your super may be a good idea if you want to avoid paying for insurance out of pocket. You might also get a cheaper premium rate because super funds bulk buy insurance. But keep in mind that the policies offered through super may not cover all your financial responsibilities for an extended period of time.

A standalone IP policy may provide more adequate coverage. It may also offer tax benefits – IP premiums are usually tax deductible if you fund your cover outside super.

Keeping your costs down

If cost is a concern in taking out a standalone plan, there are a few ways you may be able to make your premiums more affordable. One of them is choosing a longer waiting period before you receive benefits after being unable to work due to illness or injury. The longer you wait, the lower your premiums. Opting for indemnity cover may also help you keep your insurance costs down. IP plans require you to choose between indemnity and agreed-value cover. Under an indemnity policy, your insurer bases the monthly benefit you would be paid on your income, at the time you make a claim.

For an agreed-value policy, the benefit is based on your income when you apply for coverage. Premiums for indemnity cover are generally lower than for an agreed value  policy. But indemnity policies may vary among providers, so speak to your financial adviser about which cover may suit you. Your adviser may also help you tailor your insurance plan to meet your income protection needs