If you’re working and haven’t yet reached the point of financial independence then income protection insurance should be on your radar. As the name implies, it can help you protect your greatest asset – the ability to earn an income.
At the heart of all income protection policies is the promise to pay the policy owner a regular benefit, usually 75% of their normal income, if they are unable to work due to accident or illness. Payments are made after an agreed waiting period and continue until either the policy owner is able to return to work, or until the end of the agreed benefit period.
Core and supplementary benefits
In addition to the core provision to pay a replacement income, most income protection policies also offer a wide range of supplementary benefits. These vary from policy to policy, but may include:
· Rehabilitation benefits.
· Travel and accommodation costs, for example to return you home if you are injured while overseas.
· Childcare benefits.
· Specified injury benefits that pay an additional amount if you suffer things like broken bones, loss of sight, paralysis or other stated conditions.
· Bed confinement or nursing benefits.
· Elective surgery benefits.
· Family support benefit or accommodation benefit, payable if a family member needs to travel from their usual place of residence to be with you.
· Total and permanent disability benefit.
· Death benefits.
Adding supplementary benefits adds to the cost of cover, and the value of any supplementary benefit depends very much on individual circumstances. Someone with a good income, modest expenses and a working partner may be able to easily meet costs such as childcare, even if their income drops to 75% of its usual amount. For someone on a tighter budget, supplementary benefits may be a way of achieving greater cover at a reasonable cost.
Supplementary benefits allow cover to be adjusted to suit individual needs. Take Kate. She’s a single, 29-year-old marketing manager who lives alone. Kate’s immediate family all live interstate and she regularly holidays overseas.
Not surprisingly, Kate sees no value in the childcare benefit. With no dependents she also doesn’t require death cover. However, with no close family living near her, the family support benefit and bed confinement benefit do appeal to her. Given her frequent overseas travel she also opts for the travel and accommodation benefit.
The ability to select only the relevant supplementary benefits means that Kate is able to design an income protection solution that suits both her needs and her budget.
Design your policy
Income protection insurance is one of the key foundation stones of an effective financial plan. If your income needs protecting, talk to your financial planner about designing the policy that best suits you.