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Income Protection Insurance

What is Income Protection Insurance?

In cases where you cannot report for work due to an injury or ailment, Income Protection Insurance will ensure that you will still get what is due you despite your absence.

How does it work?

Income Protection Insurance aims to provide you an income (although not the whole amount you would have normally earn during normal days) in the event that you cannot go to work due to an ailment or injury. You will normally be paid at about 75% of your earnings until such period that you are well enough to get back to work or until the maximum benefit period as stated in the policy have elapsed, whichever comes first. The period of benefit usually ranges from 2 to 5 years or up to the age of 65 years. This is usually the period of benefit as included in the policy for insurance of this kind in Australia.

Do I really need Income Protection Insurance?

Just try to picture this. If you happen to be the sole breadwinner of the family and you wake up one day incapable of reporting for work due to a debilitating illness or an accidental injury, what would you do? More importantly, will your family survive for some length of time without the income you earn that supports the whole family? Can you live on your savings for a period beyond one year without you working?

Income Protection Insurance covers individuals 24 hours a day, 7 hours a week, wherever you are and despite of what kind of injury or harm you suffer.

Even if you have some savings, how could you expect to live on such savings to support your family's needs, pay the usual monthly bills and still set aside money for the future for an extended time? You are may be covered by Worker's compensation policy but you should bear in mind that you will only be covered if the injury you suffer is connected with your work. What if something happens to you that is beyond the scope of your work? Who would compensate you for the days that you are bound to the bed recuperating?

How much is the insurance coverage you should apply for?

The amount of Income Protection Insurance is usually determined by the salary you are receiving. In Australia, the insurance cover is limited to the following:

  • Employed Individuals: maximum amount of cover is equal to 75% of your present gross salary which includes fringe benefits and any superannuation contributions.

  • Self-employed: maximum amount of cover is equal to 75% of the earnings made by the business due to the individual's personal efforts minus the individual's share of expenses.

  • For specific income limits, a much lower percentage of income may be applied and with corresponding maximum levels of benefits shall apply.

You must remember that Income Protection Insurance should cover for the provision of an income stream that will replace your earnings should you not be able to report for work. Thus, you must take into consideration the factors that will be affected such as the monthly bills that you will be paying, your household expenses including the needs of your spouse, children and other dependents and other exigent financial responsibilities that you need to attend to.

How much should you pay for Income Protection Insurance?

You should bear in mind that income protection premiums vary according to the level of protection you need and the type of company you are dealing with. Prices of premiums may vary at the market depending on the age of the insured, the salary to be insured and other essential factors such as gender, health condition of the insured, occupation and the likes. In Australia however, the rule of thumb when it comes to income protection approximates at 2% of an individual's annual salary. Premiums for this insurance are also tax deductible.

Where should I apply for the best Income Protection Insurance?

In Australia, there are several insurance companies offering a wide range of insurance coverage. To help people find the best provider when it comes to income protection, there is a website online which can help you find the best Income Protection Insurance. You will not be required to pay or buy anything from such service since it is offered for free. You can find this service at the Rate Detective's website. They have insurance specialists who can help you find the one that match your needs and they can even give you advice on the kind and type that you should apply for in case you are confused by the technical terms involve.

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