Is your income protection adequate?

Income Protection costs the average Aussie around 1-2% of their average annual income. Research has shown that 38% of working Australians could survive for less than one month on zero income before needing to sell assets. For those under 35 this figure was closer to 50%.

Having any income protection policy doesn’t necessarily mean that you are covered appropriately for the rest of your working days. There are quite a range of different things you need to be aware of when looking over your paperwork. For starters some of the more glaring issues that we come across include two main components of any income protection plan.

Waiting Period – The waiting period is the length of time that you will need to wait until you can start your claim for income protection. Try not to confuse this with the waiting period on your health insurance which is the length of time before you can claim for certain benefits such as optical or dental. It is quite common to find some policies with long waiting periods which are just too inferior to be of benefit to the client. Common sense should be used when determining a suitable waiting period and it should take into account your personal circumstances.

Benefit Period – The benefit period is another area where if not thought out properly can leave you underinsured. For the majority of people this period should normally be for as long as they intend to work. This will then replace their income up to retirement rather than a benefit period of 2 years which may leave you without income for what were going to be your remaining working years.

Some other things to consider include whether your policy is an indemnity contract or agreed value. Depending on the person and their occupation and work status this can vary and needs to be considered. The former will assess your income at claim time whereas the latter will agree to a value now at a slightly higher premium cost.

There are also quite a lot of ‘bells and whistles’ typically offered to income protection plans which in some cases can be extremely useful for particular occupations while for others they are not required. These need to be reviewed on a case by case basis to ensure you are not paying for something you don’t need.

Different insurers will also be more appropriate for different occupations and ages and certainly some insurers have a sweet spot or niche that they service. Sometimes it can pay to review your current arrangements.

I hope some of the points above have been able to give you some insight into how complex the area is and helped you to understand how important it is that you have the right cover. Please make sure you seek advice and there is no harm in reviewing your existing cover to make sure you and your family are protected.