Income protection insurance: all your questions answered

If you’re looking for more information on income protection cover, you’ve certainly come to the right place. Here are the answers to the most frequent questions about income protection insurance. 

What is Income protection insurance? 

Income protection insurance offers you the ability to protect your income in the event you can’t work due to an illness or injury. 

In the event of a claim, you’ll receive monthly payments based on a percentage of your salary until you can return to work or the end of your policy’s benefit period.

What does income protection insurance cover?

Income protection insurance covers you against incapacity due to an illness or serious injury that renders you unable to work. However, different types of income protection insurance offer varying levels of cover, including:

• Own occupation: you can’t undertake your own occupation
• Suited occupation: you can’t do your own job or others that fit your skills and experience.
• Any occupation: you’re unable to do any kind of work.
• Accident-only: because of their past medical history, not everyone may be eligible for a standard income protection insurance policy. Accident-only cover offers protection in the event you can’t work due to an accident; it won’t, however, not cover you in the event of illness.

What does income protection not cover?

Income protection generally doesn’t cover you for voluntary or involuntary unemployment. Additionally, income protection policies have a waiting period, which can range from 14 days to two years, during which you don’t receive payments. The longer this period, the cheaper the premiums tend to be. Subsequently, choosing a policy with a waiting period that accounts for your employer-provided benefits, savings, etc. is crucial. 

How is income protection calculated?

The proportion of salary you’ll receive depends on how much you’re insured for; you can choose to cover up to 85% of your income.

Who can claim income protection?

People in most occupations who receive a regular income, whether from a job or self-employment, can take out income protection cover. Once an individual holds a policy, they can claim income protection payments if they suffer an injury or fall ill, are unable to work, and satisfy the terms of their insurance policy. 

Is income protection paid monthly?

Income protection is paid monthly – as opposed to a lump sum. 

Can I earn money while on income protection?

Yes, you can indeed earn money whilst claiming income protection payments.. However, you generally won’t be eligible for your full benefit as your policy will generally provide some supplementary income to match your monthly benefit amount. This can vary between policies, so it’s important to understand the terms of your specific policy, as listed on your product disclosure statement.

How much income protection insurance cost?

Affordable income protection insurance starts at around $60 per month and can cost as much as $230 a month. The cost of your income protection cover depends on:

• Age
• Occupation
• Health: current health, family history, etc.
• Lifestyle factors (smoker, etc.)
• Percentage of income covered
• Benefit period, i.e., how long you receive payments
• Waiting period, i.e., how long until payments start
• Range of illnesses and injuries covered

What is income protection insurance for self-employed?

Income protection for self-employed people covers individuals who own businesses or work as sole traders. Fortunately, there’s usually no extra hurdle to jump in acquiring income protection insurance if you’re self-employed.

See more: Income protection for tradies

How long is income protection paid for?

This depends on your policy’s benefit period: the longer the period, the longer you’ll receive payments. The benefit period insurance protection cover policies can be:

• 12 months
• 2 years
• Until you’re 65 years old
• Until you’re 70 years old. 

However, no matter the length of the benefit period, your payments will generally cease once you can return to work.

How long can you be on income protection?

The length of time during which you’ll receive income protection payments is determined by your benefit period. At best, this will be the entire time you’re unable to work or until you retire. 

At what age does income protection stop?

This depends on your policy; the best income protection will stop when you reach retirement age. 

What are the benefits of income protection insurance?

The advantages of insurance for income protection include: 

• Helps cover your outgoings so you can concentrate on your recovery
• Peace of mind that your family will be provided for
• You’re not dependent on support from your employer
• It compensates for not having a lot of savings
• Ideal for self-employed people, who don’t have sick pay or annual leave entitlement
• For most of us, our ability to earn an income is our greatest financial asset. Income protection cover allows us to safeguard a portion of said asset.

See also: Insurance policy review

Is income protection tax-free?

Because income protection payments replace your prior salary, which was taxable, they are treated as income and taxed in the same way. 

Can I claim income protection if unemployed?

Income protection does not cover you against losing your job. In contrast, if you become ill or injured while unemployed, you can claim on your policy if you continue to pay for it. However, this depends on the specific terms of your policy, so it’s crucial to carefully them on your product disclosure statement.

Can I have 2 income protection policies?

You can hold multiple income protection policies. Purchasing additional policies helps to fill any gaps left by your initial policy. Now, that said, it’s vital to seek professional financial advice if you hold multiple policies – so you can avoid paying for a policy that you can’t ever successfully claim on. 

What is income protection for doctors?

Income protection insurance for doctors, or anyone in the medical field, becomes very bespoke due to the nature of your profession. subsequently, not every insurance provider offers the amazing policies available to your profession – so it’s become very important to acquire a policy from the right insurance provider. This will give you better definitions at the time of making a claim, cheaper monthly premiums, and additional benefits.

For more information, please take a look at our post on the best income protection for doctors. 

For invaluable advice on income protection, tax planning, or any other aspect of your financial future, contact us to schedule your consultation.

Please note that all the while the information provided above is factual in nature, it’s also intended to apply generally, and to a broad audience. Subsequently, the information hasn’t taken your personal circumstances or goals into consideration.