Income Protection Insurance Explained - What You Need To Know

Copyright (c) 2014 Kerrie Peacock

If you are working and have a regular income, imagine what would happen if you are suddenly unable to work anymore due to an illness or injury. Who will take care of your bills, rent, mortgage and debts? Imagine the level of stress that you would end up undergoing! To make things easier, income protection insurance provides you with a regular benefit in case you are unable to work due to an injury or sickness. You will be able to get a monthly payment of up to 75 per cent of your normal income.

Income Protection And Life Insurance

Income protection is normally grouped under life insurance, but it is different from term life insurance. It is therefore important to have the difference between life insurance and income protection insurance explained. With Income protection insurance, you get a regular benefit if an injury or ailment leaves you unable to work, while life insurance offers a lump sum payment if you die or have less than 12 months to live due to a terminal illness.

Under income protection insurance, you can insure up to 75 per cent of your pre-tax income, while with life insurance, there is no limit to the amount of cover you can have. With income protection insurance, the policy is held until you reach the age of 65 and you can get an extension up to the age of 70 years, while for life insurance, you can hold your policy until you reach the age of 99 years.

Types Of Income Protection Covers

The two common types of income protection insurance are the indemnity policies and the agreed value policies. At the time of making a claim, indemnity policies will confirm what your present income is and will adjust your benefits according to your most recent income, and not the income that you had when you started the policy. The superannuation fund offers the indemnity policy to members, and premiums are deducted from the contributions you make to the fund. Agreed value policies on the other hand are the most expensive and at the time of making a claim, your income at the start of your policy will be used to calculate your benefits.

Price Comparison

Since there are several income protection policies provided by a large number of insurance providers, it is a good idea to have income protection insurance explained by different providers. You will probably find that the types of cover and the prices vary between providers. The most common determinants of premium rates are your age (the premiums are higher if you are older), your health, gender, whether you smoke or not, your occupation and your preferred waiting period. The waiting period is the time you will wait before receiving any benefit after the injury or illness has occurred. The longer the waiting period is, the lower the premiums will be.

Types Of Premium

You can decide to have a stepped premium whereby at the start of the policy, your premiums are cheaper but get more expensive as you progress. You can also have level premiums, which remain constant until ten to twelve years later when the premiums decrease. These premiums are suitable if you plan to stick with the same provider.


----------------------------------------------------
Kerrie peacock dedicates her time towards researching life insurance products in Australia. To get more insight on a cover that suits you, visit http://www.mecovered.com.au/income-protection-insurance-explained .