Purchasing income protection can be best described as buying yourself some extra sick leave. Whenever the unfortunate scenario arises where you become sick or injured and consequently find yourself unable to work, income protection will pay you a monthly nominated amount. Signing up for income protection means that when your holiday pay and sick leave have run out, your income protection can continue to pay you for your lost income. 

Having income protection is even more beneficial for individuals who are working in a position of employment that involves a greater risk of injury or sickness occurring. If you are working in a profession where its employees have a high usage of sick leave, then the likelihood of you needing to make a claim is almost certain.  

If a number of your family members have experienced the inability to work due to injury or illness in the past due to a health condition, then it would be a very smart decision to sign up for income protection as soon as possible.  

A recent survey showed that 73 percent of Australians have no income protection policies and have no intentions of getting one in the foreseeable future. 

The survey that was undertaken in August 2021 showed that only 16 percent have income protection and another 11 percent don’t have it but are planning to get it at a later date. 

Generally speaking, income protection will usually cover you for up to a percentage of your income after an agreed waiting period and pays until your agreed period reaches its expiry date.  

For example, you could be insured for $5,000 per month to the age of 70 after a waiting period of 4 weeks.  

It is important to be aware that income protection doesn’t cover your holidays, it doesn’t cover periods of unemployment. Your income protection always comes with a waiting period after your claimable event.  

Joel Ruig from Vault Accounting says that there are number of mistakes Australians often make when it comes to income protection.

“People make two big mistakes when they think about their income protection, first they think that they are immortal and that bad things will never happen. I have been in the financial planning industry long enough to have learned that something happens to every single person every single time. No one escape life alive, and usually they can have a rough ride along the way,” says Joel Ruig from Vault Accountants & Financial Advisers.

“The second biggest mistake is that people think that insuring themselves is a waste of money and too expensive. Well I could only hope that it is a waste of time because life is a defence force for the nation if you waste your money on income protection then that means you have never been sick or ill and unable to work as a result,” continued Mr. Ruig.

Although most policies by default will offer you a default level of cover of 75 to 85 percent of your income, you may be able to get cover with a reduced benefit amount. Consider what you would need to cover in the event that you were unable to work.

It is also important to keep in mind that some insurers will only provide a maximum monthly benefit for example; $12,000 per month, so it is worth checking to see exactly what you are eligible for.

One of the additional features that you can include in your customised income protection policy is called Family Care Cover. 

Parents of a child who suffers a serious accident or illness may need to take time off to care for their child full-time. 

However, because the parent remains in good health and is capable of earning an income, they usually are unable make a claim against any of their insurance policies. 

If financial assistance is available from the government, it’s unlikely to be enough to cover even the standard expenses, let alone the additional cost of medical bills. 

In most cases a parent will choose to take time out from their job or business to support their child and worry about financial repercussions later on. 

If you have Family Care Cover you will have less financial worry because you could be paid a monthly benefit. 

This benefit is paid for a period when the parent of the sick child stops working in their regular occupation to care for a dependent child too ill or injured to attend school or childcare. Waiting periods and maximum cover periods usually apply make sure you check the policy terms for details. 

“Income protection does cost, it is tax deductible, but the expense of not having that replacement income when the chips are down is a lot less expensive than having to sell your assets or default on your home loan because you no longer have an income sufficient to fund your living,” said Joel Ruig from Vault Accountants & Financial Advisers.

“Income protection is essentially peace of mind. We all know that there will always be times where we cannot work due to illness or injury. Income protection provides the security in knowing that you will have an income when sick leave, or holidays run out. It doesn’t hurt that the premiums are also tax deductible as well,” continued Joel Ruig.

Who is eligible for income protection and when is it most valuable to have it?    

Generally speaking, the only restrictions in terms of the eligibility surrounding income protection are minimum age and maximum age at the time of application. Pre-existing conditions also can exclude you for income protection.  

Almost everyone is otherwise eligible. When considering your income protection, the insurers know exactly the highest risk occupations. This is based on the claims for the occupation as a whole. So, if your quoted premium is high then you are going to stay in that profession you need to get that cover while you can. Your only other option to change occupations or leave that job and find something less risky.  

What is the process a person has to undertake when signing up to receive income protection?    

At Vault Accounting whilst working with our clients who are interested in income protection, we undergo an extensive research and comparison or income protection providers for you. We spend a lot of time learning about you. When we have agreed with you and your needs for income protection, we then take your business to the market and commence application on your behalf.  

The main thing you would have to do is to complete your personal and private health declaration and or interview. We might have to send you to your doctor to check you out. So, this means you get a free medical exam. We will also be doing a lot of the work for you behind the scenes.  

“It amazes me how people are so careful and disciplined to cover their car, their house, and their contents. Yes, these are all important. Especially, to insure your house, particularly if you have a huge mortgage on your home. But somehow, we devalue the most mission critical aspect of their financial lives. The most financially valuable asset you will ever have is, you, you and your capacity to earn a living. If your income is taken away you could lose everything,” says Joel Ruig.