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What is income protection insurance and why is it important?

 


What is income protection insurance?

Income protection insurance policies pay a benefit which is equivalent to a percentage of your wages should you ever become sick or injured and unable to work. The benefits are payable if you are unable to work at all (Totally Disabled) or partially unable to work (Partially Disabled). Although, usually you have to be Totally Disabled for a period of time before you can claim any Partial Disability benefits.

How much will my income protection insurance pay?

Generally, income protection insurance benefits are up to 75% of your wages (sometimes more) for a period of time that you are unable to work, or unable to work as much as much as you did before you got sick or injured.

Like all forms of insurance, income protection insurance is a safety net. Except that rather than insuring an asset which is valuable (like a car or house), you are insuring your capacity to work, which is arguably your most valuable asset. If you get sick or injured and are unable to work, income protection insurance can be the difference between keeping up with mortgage repayments or not.

Find out more about your payments in our article "How much will my monthly Income Protection benefits be?"

An insurance company’s interests are not the same as yours

However, as the Financial Services Royal Commission has shown, insurance companies don’t always have your best interests at heart and it’s important that you know your rights entitlements.

Knowing what you are entitled to when you claim on your income protection insurance policy, and what terms are in the policy, can be important when it comes time to lodge a claim. Making sure that you complete your claim forms correctly and consistent with the terms and conditions of your policy can be the difference between an accepted or rejected claim.

Key things that you should be aware of when making a income protection claim

  • Income protection benefits are paid for a set period of time (the benefit period). This can be from two years to age 70 depending on your policy.
  • Benefits are not usually paid right away under your policy. Usually you have to allow some time to pass before you will be paid. This is called the waiting period and it can be from 14 to 90 days (sometime more) depending on your policy. Stay tuned for our upcoming blog on waiting periods in income protection insurance.
  • Some policies have exclusions for pre-existing conditions that say an insurer won’t pay benefits for; illnesses or injuries which existed before the policy started.
  • Sometimes policies only pay if specific illnesses or injuries cause you to stop working.
  • Sometimes policies will only you if an accident causes you to stop working.
  • There can be different ways of calculating your income before you got sick (your pre-disability income).
  • Usually, any income earned after you are claiming benefits (post-disability income) offsets the income protection benefit you are paid, however the way that this post-disability income is calculated varies.

Income protection insurance is important because it protects you and your family if you ever become sick or injured and cannot work.  However, as you can see, making sure that you get the claim requirements rights can be tricky.

Get help?

If you’re thinking about taking out income protection insurance and are unsure which policy to go for, speak to an independent financial advisor.

If you need help making a claim on your income protection insurance or your claim has been rejected, get in touch with today’s blog writer, Tom Cobban, for some free legal advice. 


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