If you’re wondering if you require income protection insurance, there are a few key questions you need to ask yourself. Start by looking at the below expenses, and calculate how much they would cost you on a month to month basis.

  • Household expenses (e.g. groceries, electricity, water bill, etc.)
  • Home loans
  • Credit card and other debts (e.g. car loans)
  • School fees

The above doesn’t even factor in lifestyle expenses that help you maintain your existing quality of life (e.g. going to the movies, sports club memberships, etc.) Now, consider the additional cash you’d have to pay to help fund recovery/healthcare costs if you were ill or injured. Perhaps you have some health insurance to tackle this burden but keep in mind there are annual premiums, claim limits and excesses/co-payments to account for.

Next, check if you have total and permanent disability (TPD) cover, trauma insurance, or life insurance. Would any of the products pay out a claim if you were out of work for months or years at a time?

And if – after answering those questions – you think to yourself ‘I might struggle to afford all that’, the outcome is clear: it may be wise to consider income protection.

Who can benefit from income protection?

  • Those in debt. Whether it’s a mortgage or a large pile of credit cards, it may be worth insuring your income to make sure your debt doesn’t snowball.
  • Single income households. Income protection can help you take care of yourself in the short term, especially if you’re living on your own.
  • Self-employed/business owners. Would your business struggle if were unable to work? Income protection may assist you in paying off small business loans and other expenses while you recover.
  • Anyone who doesn’t qualify for work cover. Or, anyone whose expenses exceed would compensate them with.
  • Tax-savvy Aussies. Did you know that income protection premiums may be tax deductible? So long as you don’t pay your premiums through your superannuation (i.e. before tax), you may be able to reduce your taxable income. The amount will depend on your marginal tax rate, your income, and several other factors.

What’s the difference between income protection and…

  • Life insurance pays a lump sum of cash in the event you either pass away or are diagnosed with a terminal illness. Income protection may pay a death benefit in the event the person who holds the policy dies, but its main function is to insure your income – not your life.
  • Total and permanent disability (TPD) insurance pays a lump sum of cash if you become permanently disabled, and will be unable to work because of illness or injury in either your own or any other field ever again. The key difference is that TPD generally pays a one-off cash benefit if you become disabled. Income protection covers you for time off work, where you receive a benefit for a period of time (or, in the case of some policies, a lump sum benefit).
  • Trauma insurance pays a lump sum of cash if you fall ill or are seriously injured, and cannot work for a period of time. It’s probably the most similar to income protection, but the difference is that it pays a lump sum cash benefit once, and is typically for serious medical conditions (e.g. cancer, stroke).
  • Workers’ compensation pays a cash benefit in the event you are injured or become sick because of your work. It should cover both wages and healthcare expenses. Getting a workers’ compensation claim doesn’t mean you can’t claim on your income protection, but it may mean you receive a reduced insurance benefit (i.e. you’ll probably receive less money each month). Head to the Fair Work Ombudsman website to learn more about workers’ compensation.

Some of the above products share similarities, which just means you can shop around and see which product may be more cost effective, or cover more health conditions.

Interestingly, ABS notes that nearly two in five Australians who suffered a workplace injury or illnesses in 2013/14 received no financial assistance. Workers’ compensation is a fantastic initiative, but it doesn’t cover everything. What if you’re on a beach holiday and have a nasty fall on some cliffs, injuring your leg and preventing you from working? It didn’t happen at work, so your only recourse would be to review your insurance.

If you’re uncomfortable with the idea of paying for big expenses in a time of crisis, compare income insurance today.

The information provided here is general only and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant PDS.