1 July 2021 (updated annually)
Who will look after your finances if you can't work due to sickness or injury? Health insurance may cover a proportion of your medical bills, but it won't cover your rent or mortgage and living costs.
The majority of Australians have no trouble insuring their home and contents from fire, theft and weather damage. It makes a lot of sense to take out insurance on your home.
It's your biggest asset, right?
The average Australian could earn around two and a half million dollars1 in their lifetime, much more than the value of the average home. And yet the majority of income earners don't insure their largest asset – their income earning capacity.
Your home, car, food, clothing, children's education – all depend on your income. That's why for many the loss of income resulting from the inability to work due to sickness or injury can cause serious financial hardship.
When you think of how your lifestyle could be affected, it simply doesn't make sense to overlook this important cover.
Income protection insurance (also known as salary continuance) is designed to provide a regular income if you are unable to work due to sickness or injury. Generally, income protection insurance provides a regular income during a period of disablement. The benefit amount payable is up to 70 per cent of your income.
Workers' compensation will only cover you for accidents or injuries that occur during working hours or for an illness that is a direct result of your employment. And, if your illness or injury is covered by workers' compensation, be aware that the benefit is capped under the different state regulations.
When it comes to protecting your income, it's easy to forget that you're protecting more than your ability to meet mortgage repayments and put food on the table. Your income isn't just about the bills – it's about your future – and how much you enjoy it.
While your medical expenses might be covered by other insurance policies, income protection insurance can be used towards expenses like your mortgage or car payments. Income protection insurance makes sure you and your family don't have to lose your belongings or your home while you recover and try to get back to work.
Also, if your disability will permanently stop you from engaging in your line of work, some income protection insurance policies will continue to pay out until retirement age. (Note: How long an insurance company will pay out depends on your individual policy. Some only pay for a year or so after the medical condition arises, so carefully compare income protection insurance policies before applying.)
Even though income protection insurance might not pay the equivalent of your salary, it might pay enough that it will save your partner from having to take on another job to makes ends meet. Either that or it might be enough to enable them to stay home to help you through your recovery to get things back to normal as quickly as possible.
To understand your needs, a financial adviser will ask you to consider the following questions about your future:
Once you've started painting the picture of your family's future and the costs involved in raising a family and reaching your goals, you'll start to get an idea of how important insurance is to cover those needs!
1 Based on full-time adult average weekly ordinary times earnings multiplied by 40 years of continuous employment [Earnings Source: Average Weekly Earnings, Australia, May 2017, ABS]