If an illness or an injury meant you were unable to work, or work as much as you usually do, how would you pay the bills? It’s the question that income protection insurance is designed to answer.
In a nutshell, if you take out an income protection policy and become unable to work for a period of time due to a total or partial disablement caused by an illness or injury, your income protection insurance can pay a percentage of your regular income each month.
It means it can help cover day-to-day cost of living expenses such as paying your bills and rent or mortgage, giving you peace of mind so you can focus on your recovery.
Do I need income protection insurance?
Income protection insurance helps provides financial assistance in the event you’re unable to work due to an illness or injury.
Income protection insurance can be especially important to consider if you or your family relies heavily on your income, if you have ongoing debts to service such as a mortgage or personal loan, or if you’re self-employed and don't have access to leave payments. In fact, even having a large amount of sick or annual leave up your sleeve won’t necessarily help cover you if the illness or injury is long-term. You may need more time away from work than those payments can cover.
There are a number of other things to consider too, that can help you decide whether you need income protection insurance.
If you’re unsure about whether this type of insurance is right for you, speak to a financial adviser.
How does income protection work?
Once your policy is in place, you’ll need to pay the premiums to ensure you’re protected and your cover stays in place should you ever need it. Generally, you can pay the premiums on a monthly or annual basis, and you can often get a discount if you pay annually.
In the unfortunate event that you’re struck down by an illness or injury, rendering you unable to work for a period, that's when your income protection policy can help. Your income protection policy will help provide you with financial assistance in your time of need by paying you a monthly benefit, this being a percentage of your monthly income (normally up to 70% of your income) for a set period of time, to help cover your ongoing expenses so you can really focus on your recovery. You must meet the policy terms and conditions in order to be paid a benefit, that’s why it’s important to read the insurer’s PDS.
Premiums are typically tax deductible, but every income protection insurance payout you receive after making a claim must be declared in your annual tax return as income.
What does income protection cover?
Income protection insurance covers a portion of your income – usually up to 70% of your total income. In order to be paid a monthly benefit, you’ll need to meet the policy’s definition of total or partial disablement. Different insurers can have different definitions and conditions that you must meet, so it’s always important to check the product disclosure statement (PDS) so you understand the policy.
Some income protection insurance policies also provide a death benefit, where a lump sum payment is made if you die while your cover is in place. Rehabilitation benefits, which go towards the cost of rehabilitation, retraining or special equipment that will assist you in returning to work, may also be included in some policies.
What income protection does not cover
Income protection insurance does not cover parental leave, if you resign, or if you stop working due to your employer terminating your contract. Income protection insurance doesn’t provide cover for loss of employment due to you being made redundant.
How long will benefits be paid for under income protection?
Benefit payments will stop when you’re no longer deemed to be totally or partially disabled, or if you’ve reached the maximum benefit period of the policy. For example, if you’ve chosen to cover yourself on a five year benefit period, your monthly benefits will stop once you’ve reached the five year mark. Your policy may also end because of the expiration of the policy, or for not following medical advice. More information can be found in the PDS.
How do I find out more?
To learn more about Medibank Income Protection, or to ask questions specific to Medibank Income Protection policies, click here.