Income Protection insurance and why everyone who is working should have it…
Especially when we’re young, the biggest asset we have is our ability to work and earn an income, and the fact the we have 30 or 40 years of doing this ahead of us.
Have you ever stopped to think what would become of you if you had a bad accident, or a serious illness that stopped you from working for a period of time. What if it stopped you from working ever again?
The disability support pension in Australia is just over $19,000 a year. Not a lot, particularly if you have the added burden of ongoing medical expenses.
Income Protection Cover
I know I would struggle to live off of that, in fact I think most of us would. So I prefer to have Income Protection insurance, which means that if this situation were to occur to me, 75% of my salary would be paid to me each month for the period of time that I wasn’t able to work, right up to age 65 in the worst case scenario.
You can select different waiting periods – this is the time you wait before getting paid, and different benefit periods – this is how long you will be paid for. The shortest waiting period is around 30 days and I usually go for that, and the longest benefit period is usually to age 65 which is definitely advisable.
If you had a good cash buffer saved (like around 3 months salary) then you could select a longer waiting period, like 90 days, and spend your own money before the insurance kicks in – this would reduce your insurance premiums too.
A little now, more later…
The way I look at it, I pay a little bit now each month (in the form of insurance premiums) and I’m protecting myself massively for the future if anything went really wrong. It’s a no-brainer, and you can even pay the premiums in your superannuation fund in most cases.