Exploring Income Protection Insurance in Australia

What is income protection?

Income protection is a financial safety net that provides support if you lose your income due to an illness or injury. It covers a portion of your regular income, usually up to 70%, helping you manage monthly expenses until you can return to work or the policy term ends.

Do I need income protection?

Your need for income protection depends on your financial obligations. It’s beneficial if you have a mortgage, dependents, or limited sick leave.

It ensures financial stability during unexpected health challenges, making it essential for self-employed individuals or those without substantial savings.

Built-in Benefits of income protection in Australia

Understanding the built-in benefits enriching your income protection policy is crucial:

  • Recurrent Disability Benefit: If the same disability reoccurs within a specified period, no new waiting period is required.
  • Death Benefits: In the unfortunate event of death during a claim, beneficiaries may receive additional benefits.
  • Future Insurability Benefit: Allows increasing your benefit based on salary growth without medical underwriting.
  • Indexation: Keeps your cover aligned with inflation, either through CPI or a set percentage.
  • Interim Cover: Provides temporary benefits during the underwriting process in case of disability due to an accident.
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Optional extras

Enhance your policy with additional options, like:

  • Superannuation Contribution Option: Insures a part of your employer superannuation contributions.
  • Increasing Claim Option: Raises pre-disablement income and sums insured by CPI after 12 months on a claim.

Factors that impact your income protection premiums

Several factors influence premium costs:

  • Monthly Benefit: Higher benefits result in higher premiums.
  • Waiting Period: Shorter waiting periods lead to higher premiums.
  • Benefit Period: Longer periods increase premiums.
  • Occupation: Riskier occupations may have higher premiums.
  • Built-in Benefits: More benefits may raise the cost.
  • Smoking Status: Smokers generally pay more.
  • Age and Gender: Premiums increase with age, and women may pay higher premiums.

How to compare income protection policies in Australia

When comparing policies, consider:

  • Premiums
  • Monthly Benefits
  • Waiting Period
  • Benefit Periods
  • Claim Eligibility Criteria
  • Built-in Benefits
  • Exclusions

Compare policies from leading insurers

Insurance companyPolicyMonthly premium
MLCIncome Assure$25.89
NEOSProtection – Income Support Standard$26.68
OnePathOneCare – Income Secure Protection$29.98
Protect – Income Cover$31.15
TALAccelerated Protection – Income Protection Focus – Short BP$39.91
Wealth Protection – Income Safeguard$41.52

Source: Life Insurance Direct Comparison Engine (April 2023; Premium estimates are based on a 2-year benefit period and a 30 days waiting period for anretail (advised) policy for a non-smoking 30-year-old male living in NSW earning $48,000 per year.)

How much does income protection insurance cost?

Premiums depend on various factors, including age, gender, smoking status, occupation, and policy choices. Calculating your premium involves considering multiple aspects to ensure comprehensive coverage.

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Compare policies from leading insurers

Use tools like the Life Insurance Direct Comparison Engine for accurate comparisons. For example, premium estimates for a non-smoking 30-year-old male in NSW earning $48,000 show the importance of comparing policies for optimal coverage.

Is income protection insurance tax deductible?

Yes, income protection premiums are generally tax-deductible when held in your name. However, the tax on the monthly benefit is applicable as it is considered income replacement.

2021 changes to income protection insurance policies in Australia

Recent changes mandated by APRA in 2020 led to significant shifts in income protection policies:

Types of policies available before the March 2020 reforms

  • Indemnity Value: Cheaper but doesn’t guarantee monthly benefits.
  • Agreed Value: More expensive but locks in monthly benefits at application time.
  • Guaranteed Agreed Value: Converts an agreed value policy to guaranteed agreed value upon proof of income.

Own-occupation changed to Any-occupation disablement definition.

New policies now often adopt a “suitable work” definition after 24 months on claim, potentially impacting the ease of claiming benefits.

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Alterations to the calculation of your pre-claims earnings

New policies typically assess pre-claims earnings based on the 12 months before making a claim, impacting those with fluctuating incomes.

75% monthly benefits reduced to 70%

Post-2021, policies usually cover up to 70% of your income, with potential reductions after two years on a claim.

Frequently Asked Questions

How does income protection work?

Income protection replaces your salary if you can’t work due to illness or injury, with payouts calculated based on pre-illness income and waiting/benefit periods.

What does income protection not cover?

Exclusions may include pre-existing conditions, pregnancy-related issues, and redundancy or loss of employment.

Who is eligible for income protection?

Typically, individuals earning an income, including employees, contractors, and self-employed individuals, may be eligible.

Does income protection cover pre-existing conditions?

It can in certain cases, depending on individual circumstances. Disclosing all conditions during application is crucial for assessment.

What is needlestick cover?

Needlestick Cover is a unique benefit in income protection policies designed to protect medical professionals from needle stick injuries.

Exclusive Life Insurance Direct Benefits

Consider the exclusive benefits offered by Life Insurance Direct:

  • Free Online Comparison
  • Lowest Price Guarantee
  • No Hidden Fees
  • Solutions for Your Unique Requirements
  • Easy to Compare and Apply
  • Claims Support Service

In conclusion, understanding income protection insurance in Australia is crucial for securing financial stability during unforeseen circumstances.

Regularly reviewing and comparing policies ensures you have the best coverage for your unique needs.

Take advantage of online tools for efficient policy comparisons and make informed decisions to safeguard your financial future. Remember, your peace of mind today depends on the choices you make for tomorrow. 🌟

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