Income protection insurance insures you against loss of income if you become unable to work due to an illness or injury, by paying you a percentage of your normal salary. So is income protection insurance worth it? Well, the answer depends on a few different things.
It may be particularly important in certain circumstances
If you’re unsure how you’d pay the bills and cover your living costs if an illness or injury meant you were unable to work, or couldn’t work as much as usual, then income protection insurance may be worth considering.
There are certain circumstances that can make thinking about taking out an income protection insurance policy even more important, such as if you:
- have family or dependents that rely heavily – or solely – on the income you earn.
- have debt requiring regular repayments, even if you’re not earning money, for example a mortgage.
- don’t have sick leave, annual leave or workers’ compensation insurance to rely on, for example if you’re self-employed or are a small business owner.
It’s worth noting that even if you have access to sick or annual leave payments, it may not be enough to get you through an illness or injury lasting an extended period. Similarly, workers’ compensation insurance provided by your employer won’t cover an injury caused by an accident that happens outside of work, or an illness that isn’t work related.
Does your super fund provide income protection insurance?
Many super funds offer income protection insurance, either as an automatic, default policy or as something you can choose to add on, so it pays to check if you already have some level of cover. You can do this by calling your super fund or accessing your super account online.
If you do have income protection insurance via your super fund, it typically means the premiums are being deducted from your super balance – so you could be paying for it. With this in mind, and to ensure you’re adequately covered if an illness or injury prevents you from working, it’s always worth comparing it with insurance you can buy independently.
People should pay particular attention to how much they’re covered for and for how long. This is important because the income protection insurance included or offered by super funds may not provide the same level of cover in terms of monthly payments and benefit periods.
On review, some may choose to take out income protection cover outside of super to either replace an add-on policy offered by your fund, or to top it up so they’re adequately covered for their needs.
Be mindful though of not ‘over-insuring’. While it’s possible to hold two income protection insurance policies – for example one via a super fund and another separate policy – the maximum insurance benefit payment you can receive each month may only be 70% of your lost income, in total.
Are you expecting it to cover any – and every – cause of lost income?
Income protection insurance is designed to cover lost income that’s due to partial or total disability caused by an illness or injury. It doesn’t cover lost income caused by any and every event.
Income protection insurance doesn’t cover parental leave, if you resign, or if you stop working due to your employer terminating your contract. Income protection insurance doesn’t provide cover for loss of employment due to you being made redundant.
If you’re still not sure what income protection insurance does and doesn’t cover, it’s worth learning more to help you work out whether it’s right for you.
So, how much income protection do I need?
No two people are the same, so it will depend on a few details that are unique to your individual needs, including how much of your income you’d need in order to help pay the bills if you get sick or injured.
For help deciding how much income protection you need, as well as whether you need it in the first place - factoring in any insurance you might be able to access via your super fund - speak to a financial adviser.
How do I find out more?
Ready to get income protection? You can get a quick quote online or call the Medibank team on 1300 152 271 if you’d like to talk to us.