What are the benefits of income protection insurance?

Income protection

The answer is income protection

One of your greatest assets is your ability to earn an income. Take that away, and you’re left scrambling about where to get the next payment for your electricity bill or mortgage. Ironically, most of us don’t even realise the importance of our earning ability until it’s taken away or it temporarily comes to a halt. 

people stressed about bills

If we are not under the illusion that we don’t think anything bad can happen to us which might prevent us from being able to work, we always think that we recover by finding another job or project, for example. Or, we think that we can just live off our savings in the meantime. But how about in cases where we are physically unable to make a living? The answer is income protection.

What is income protection insurance?

Income protection is an insurance policy that benefits the policyholder who cannot work because of an accident or an illness. It can temporarily replace lost income so the holder can focus on getting back on track.

How does income protection insurance work?

The specific terms of an income protection policy will depend on the insurance company you get your policy from. Still, typically, it will pay out about 70% – 90% of your income based on your annual earnings (12 months) before the illness or injury.

Two Types of Income Protection Policies

There are two types of income protection policies:

  • Indemnity Value Policy – you are insured based on how much you earn at the time when you complete your application. When your income has reduced since you took out the policy, the claim may be based on the reduced amount. If your income is more variable, your claim will be based on your average annual earnings over a period of time.
  • Agreed Value Policy – you are insured based on an agreed amount you determine at the time of your application. Simply, you know how much you will receive regardless of the income you’re earning at the time of your claim.

In March 2020, it’s important to note that insurers can no longer offer the Agreed Value Policy to new customers. Those who have had this policy before the said date can continue with their policy as is. New clients will only be able to get the Indemnity Value Policy, which is more affordable and useful for those with a variable and stable income.

When can you use income protection?

You can claim your income protection policy payout if you’ve succumbed to an injury or sickness that results in significant time off work. Some policies cover certain mental health conditions.

Why Income Protection can Protect Your Family

It’s ideal for anyone who is earning to have income protection. If you are a small business owner, self-employed, or have a family that depends on your income, this type of policy can be a buffer until you get back on your feet. Although you won’t get 100% of your income per month, having income protection can: 

Cover the Cost of Rehabilitation

In the unlikely case where the holder gets into an accident or becomes ill, having income protection grants the holder a better chance of rehabilitation or recouping. There may be enough to cover medical expenses and rehabilitation.

Reduce Stress for Yourself and Your Family

Being unable to provide for your family and yourself causes stress and even friction within the family. If you have income protection, you’ll worry less about how you will support your and your family’s daily needs.

Allows You to go Back to Normal Quicker

When you have finances to support your family or for rehabilitation, even if you’re not working, you typically have the financial resources to get back on track quicker.

Continue to Pay Bills

One of the best benefits of having income protection is you can pay your bills on time. Whether it is your electricity, car, or rent, you can continue to pay most of these bills as if you are still earning a living.

Keep Your Home

A mortgage is a long-term commitment. In cases where an accident, injury, or illness has happened, you may be unable to keep up with your payments. However, if you have income protection insurance, you can continue to pay your mortgage and keep your home.

“Do I need income protection insurance?” 

If your family is dependent on the income that you’re making, it’s a good idea to cover your bases, so you are ready for whatever life throws at you. We usually don’t give a second thought to ensuring our house or vehicle (material objects that can be repossessed if we are unable to continue the payments) all the more that we should insure one of our greatest assets – our ability to earn.

If you’d like to know more about income protection insurance, your next step is to consult an adviser to help you make the best choice. Contact Vision Property and Finance today by visiting