Misconceptions about income protection cleared
What would happen if your income, or your partner’s, suddenly stopped? Given the enormous impact that a hiccup in your family’s income stream could have, income protection insurance could help ease some of the financial strain.
Your regular pay cheque whether it’s weekly, fortnightly or monthly, helps keep your family’s life running smoothly. It likely keeps food on the table, a roof over your heads, and the lights on. While you may find it difficult to protect against all causes of income loss, income protection insurance can assist in situations where sickness or injury may prevent you from working for a prolonged period of time.
Four in five Australian parents say they worry about protecting their family, and one in seven admit to spending more than two hours each day worrying.
You might already know a little bit about what income protection insurance is. Here are some explanations to clear any misconceptions you may have heard.
Misconception 1: Income protection insurance is the same as life insurance
Life insurance is not a substitute for income protection insurance. While many people think they’re similar, they are, in fact, very different forms of insurance with very different features and practical implication.
Simply put life insurance can assist your loved ones financially if you were to unexpectedly pass away or be diagnosed with a terminal illness. Income protection insurance, on the other hand, continues to pay a portion of your income if you are sick or injured and unable to work for a period of time.
Both life insurance and income protection insurance can provide financial security for your family – though in different sets of circumstances.
Misconception 2: If you are young and healthy you don’t need income protection insurance
Although it may be less likely, you may still be at risk of getting sick or injured during your younger years. Income protection insurance premiums are calculated based on a number of factors, such as your age, smoking status and the answers you give to health questions you are asked in the quote process.
Misconception 3: Private health insurance covers all the bills if you get sick
Private health insurance covers certain bills related to specific medical treatments. Hospital policies generally cover certain treatments as a private patient in either a public or private hospital. If you also have an extras policy, you may be covered for certain optical and dental costs and other treatments from non-medical or allied health services. Private health insurance may also pay for any ambulance bills you receive.
Income protection insurance can address any loss of income you sustain while you are in hospital and recovering. During this time, many of your normal expenses and commitments such as a mortgage or even the groceries, will still need to be paid. It can help pay the bills so you can focus on getting better. Unless you have a significant amount of savings set aside or a large pool of leave entitlements with your employer, income protection could be the way to financially support you and your family if you are unable to earn an income due to sickness or injury.
Misconception 4: Income protection is covered through super plans, so you don’t need a policy
It’s true that some superannuation plans include income protection insurance, so it pays to check whether it’s included as part of your super.
For some people, cover through super will be sufficient. But it’s important to check the limitations and conditions that apply to any income protection insurance that comes with your super fund. Remember that if you change super funds or cease employment and your fund becomes inactive, the cover may stop.
Misconception 5: It’s not necessary
Whether insurance is a necessity depends on each individuals’ circumstances. It may be worth sitting down and considering your options a little more carefully.
Have you considered or do you have a plan for what would happen if you injured yourself or become sick for a significant period of time and are unable to work?
There are a few strategies to help protect you financially, such as setting up an emergency fund that you can access, or taking out an income protection insurance policy, or it could be a combination of these. Considering income protection insurance as a way of addressing this risk could give you some peace of mind.
The key question to ask is, how long could your cash reserves last you, taking into account any leave entitlements you have.
Income protection insurance has the potential to play an essential role in protecting your lifestyle. It could also reduce the stress from an already-distressing situation if you can’t work due to getting sick or injured – giving you peace of mind.
With income protection insurance, you’ll be taking steps to help protect yourself financially if you are unable to work due to sickness or injury. Find out more about Real Income Protection Insurance and how it can help.
11 Jan 2024