How does income protection insurance work?

How does income protection insurance work?

Have you thought about what would happen if you got sick or injured and were unable to work and earn an income? Income protection insurance is designed to protect you and your family if this were to occur – but how does it actually work?

This guide explains the things you need to know.

What does income protection insurance cover?  

Sometimes known as salary continuance insurance, income protection insurance pays you a regular income (benefit amount) if you're unable to work for an extended period of time. Real Income Protection Insurance covers up to 70% of your pre-tax income, up to $15,000 each month. For instance, if you earn $6,000 per month and you're unable to work, Real Income Protection Insurance could pay you up to $4,200 per month (after your selected waiting period) until you’re back on your feet.

Income protection insurance is also generally tax deductible, so you can claim your premiums on your personal tax return. You should always seek the advice of a professional to assess your situation.

With Real Income Protection, you get the flexibility of choosing your waiting period and benefit period depending on your circumstances:

Benefit period: When you apply for a policy you can choose a benefit period – this could be anything from six months, one year, two years, or five years. This means you're paid the monthly benefit amount for up to your nominated period depending on how long you're unable to work due to sickness or an injury. 

Waiting period: Income protection insurance policies generally come with waiting periods. Real Income Protection Insurance offers a choice of either a 30 day or 90 day waiting period before you can start receiving benefits for an eligible claim.

What can you use your benefit payments for? 

Income protection insurance is designed to replace a portion of your income and help you avoid any potential financial stress, if you get sick or injured and can‘t work. When the benefit amount is paid into your account, you can use the money to pay for anything from your rent or mortgage, to your utility bills, school fees or your groceries – whatever you deem is best!

What can be excluded from income protection insurance?

Income protection insurance can come with specific exclusions, and these can vary depending on your provider. For example, you might not be covered if you can't work due to a sickness or injury caused by a self-inflicted injury, attempted suicide, drug use, participating in illegal activities, or pregnancy. It’s always best to find out what is or isn’t covered by your provider.

How are premiums calculated? 

Insurers calculate your premiums based on a range of factors. 

  • Benefit amount: The benefit amount will vary the cost of your premiums. A higher benefit amount will incur a higher premium and vice versa. 
  • Waiting period: If you choose a longer waiting period, such as 90 days instead of 30 days, your premium may be lower due to the reduced risk to the insurer. You should of course choose the appropriate waiting period for you depending on your situation.
  • Benefit period: The time for which you'll receive your monthly benefit amount for an eligible claim – a shorter benefit period may also result in a lower premium due to a lower risk to the insurer.
  • Occupation: If you're in a high-risk occupation, your premium may be higher due to the increased risk of your job causing illness or injury. With Real Income Protection Insurance, the duties you perform at work are considered when calculating the premium and not just your job title. 
  • Age: Generally, the older you are, the higher the premiums will be, due to the higher risk factor of illness.     
  • Lifestyle factors: Your insurer may charge you a higher premium if you participate in extreme sports or hazardous activities or are a smoker.
  • Medical history: Generally, providers will ask for details about your state of health and family’s health history, which may affect your premium and may even be declined cover for a particular claim type as it is considered pre-existing.

Protect your financial security 

Income protection insurance could be an option if you want to have a form of financial protection if you can’t work for an extended period of time due to being sick or injured.

With regular benefit payments, you may be able to keep up with your mortgage repayments, household expenses, and recover without the added financial stress. 

With a range of benefits built-in and the flexibility to choose your benefit and waiting period, income protection insurance is a sensible consideration for those reliant on regular income to meet their day-to-day expenses.  

Explore the benefits of Real Income Protection Insurance and find out how it might help you.