An income protection insurance plan is designed to pay a regular income if you are unable to work due to sickness or accident.
You can generally insure up to 75% of your monthly pre-tax income. Some companies limit the total payout to an amount of $10,000 per month. Your premiums could also be tax deductible.
So many people insure their assets like their home and car, though most people forget to insure their most valuable asset of all - their income.
What would happen if you had no income? Most people would be in serious trouble with less than 3 months income in the bank.
Your income protection insurance will payout if you have an accident or illness that prevents you from working. You can choose when it commences paying - from a couple of weeks to several months. The longer you have as a waiting period, the cheaper your premium.
Look at Harry as an example:
Harry was employed as an accountant. He led a reasonably quiet life with his wife Jane. Harry also believed in making sure he was well protected and had income protection.
Whilst on holiday in Vanuatu, Harry had a scuba diving accident and ruptured his lung. Harry was close to death, though luckily recovered after an extensive time in hospital.
Thankfully, Harry's income protection payments cut in after one month and continued paying for the following 8 months whilst he was recovering, which meant that Harry and Jane could continue paying the mortgage and their other bills.
A lot of people think they are covered by workers' compensation. However, workers' compensation generally only covers you during work or travelling from one workplace to another. You may also be covered by car insurance for your injuries - but not for your loss of income.
Income protection is insurance to protect you when the unexpected happens, preventing you from working - whether it is through illness or accident.
These articles are provided as reference material to allow more informed decision making, but are not intended as being a complete source of information on any topic. All readers should make their own independent analysis on the topic to make sure they have considered the aspects that are important to them.