Guide to the complexities around income protection insurance

If you are self-employed, chances are you are required to hold an income protection policy in order to gain access to a worksite. But have you ever stopped to think about how beneficial this policy could be if you needed to claim? According to the Australian Bureau of Statistics, it was estimated that in 2012, 4.2 million Australians had a disability1. That is approximately 18.5% of the population. Musculoskeletal issues (back, joints), mental health (stress, anxiety, depression), arthritis and cancer are among the leading causes of employment restrictions2.

There are a number of factors to consider when purchasing an income protection policy:

1. What does my policy actually cover me for?
Income protection policies pay up to 75% of your income if you are unable to work due to any injury or sickness. Good policies provide 24/7 worldwide coverage. You should check that your policy covers you for injuries that happen at work, home or elsewhere. It should also cover all type of sicknesses and be guaranteed to renew every year under the same terms and conditions.

2. Does my super fund already provide adequate coverage?
Unless you have received personal advice from your super fund, it is unlikely that this cover will be adequate. Most super funds offer default insurance and in most cases, income protection is not provided. If it is, it usually comes with long waiting periods and short payment periods.

3. Choosing the right waiting period.
You can choose from 14 day, 30 day, 90 day or even 1 or 2 year waiting periods. The longer the waiting period the cheaper the cost. If you think that you could survive on cash savings for prolonged period of time, perhaps ask your insurer for quotes to extend the waiting period if you would like to reduce the cost.

4. Does my policy include a specified injury benefit?
A specified injury benefit is automatically included in some income protection policies. It provides an immediate payment if you suffer from a common injury such as a broken arm or leg. This benefit can be very beneficial for people in manual employment.

1 ‘Survey of Disability, Ageing and Carers‘ – Australian Bureau of Statistics, November 2013
2 ‘Australia’s Health 2012’ – Australian Institute of Health and Welfare, June 2012