You might consider yourself fairly knowledgeable when it comes to health and life insurance, but income protection insurance is a lesser known form of coverage.
Essentially, income protection insurance is exactly what its name implies - a type of cover that can replace lost income in the event of an illness or injury which leads to a prolonged absence from work.
How it works
Income protection insurance can assist you in the event of sickness, trauma or other types of disabilities. Obtaining an income protection insurance policy means you can receive a percentage of your regular income (after a qualifying period) as a pay out through a claims process.
This can be a great help if you're struggling with an illness or disability and are unable to work regularly.
Additionally, accident compensation is a fragmented market in Australia. Even if you do receive compensation from your employer, it may not be enough to make up for the loss of your regular income. You should keep in mind that some forms of compensation are dependent on whether you were in an accident or were physically harmed.
Types of policies
Typically, the most popular form of income protection insurance pays out a percentage of your income.
However, different options exist. One type of policy allows you to protect against income loss from total permanent disability by making regular payments toward a previously agreed upon amount.
Different policies also come with specific benefits and requirements, such as the maximum amount available, and which types of illnesses and injuries qualify.
Which type of policy best suits your needs depends on many factors, such as your age, whether you rely on dual incomes and the amount of debts you would have to contend with if you were suddenly unable to work.
In short, it can be a vital part of your financial planning strategy.