Income Protection insurance simplified should alert readers to the importance of this cover as part of their risk management strategy. Income Protection Insurance is an important wealth management strategy, but several weeks’ application processing is fairly normal. Your earning ability and cashflow is protected with income replacement insurance. The sooner your application is processed, the more secure your financial position. (Processing times vary because of some of the medical issues that arise when doctors submit their reports, where required).
Income Protection insurance simplified through answering some questions –
Do I need Income Protection Insurance?
All individuals generating an income from most sources are likely to benefit from the reassurance that Income Protection insurance provides. The insurable income can arise from their personal exertion (salaried, or self-employed), or from personal management of certain investment portfolios. Its purpose is to maintain a reasonable cashflow during times of disability.
Income producer who carry debt, use this cover to ensure that dependants enjoy financial certainty during times of disablement. The debt need not be tax deductible – all debt requires consistent servicing.
(Note: revising your cover details on a reasonably regular basis is an important service offered to clients of ContinuumFP.)
How does Income Protection Insurance benefit the insured?
Payment of benefits under this form of insurance are amongst the most consistent amongst insurers. It provides a reliable, valuable level of financial support during periods of illness or other incapacity.
Most insurers pay eligible claims under Income Protection policies, monthly. It commences after an agreed ‘waiting period’ and continues covering the term of the incapacity of the insured. The benefits continue for as long as the incapacity prevails, only limited by the maximum term covered by the policy. You will nominate applicable term when you apply for the protection.
Accident or illness events will impact the regular cashflow on which you rely. Such incapacity may leave you unable to perform your usual duties for extended periods of time. Income Protection Insurance will provide financial security during your recovery period. Some policy schedules provide for funding rehabilitation costs to help you return to your income producing activities more quickly.
I’ve just started a new business: when should I apply for Income Protection Insurance?
A more affordable premium will be available when you secure cover earlier. Because you will likely be in better health then, there will be fewer (if any) ‘exclusions’ from the cover sought. The age-factor in the premium may also benefit you in the premium cost assessment.
It is prudent to insure your earning capacity –
- to support the lifestyle that comes with that status,
- as soon as you start deriving an income from any source, or you
- start incurring debt after having become an income producer, and the debt-repayment obligations arise.
Eligibility for cover will be delayed in some instances: when –
- a period from commencement of your business, whilst you
- establish a level of income against which they can assess the protection you will be eligible to insure.
We have seen instances where this can take up to a couple of years of profitable trading. In these cases we are able to structure a different style of risk protection using other insurance products.
Whether you are –
- single and unattached,
- committed to a partner, or
- have ambitions of building wealth/ assets and/ or incurring debt –
you should seek the financial protection that comes with Income Protection Insurance cover from the earliest opportunity.
How do I decide which insurer I should apply to?
Continuum Financial Planners advisers are qualified to advise on policies issued by all major insurers in the Australian market.
Our team members understand the strengths and qualities of the policies offered by the various providers. Your engagement with us will develop and recommend –
- an understanding of your current and foreseeable financial circumstances, and
- the most appropriate policy type,
- level of cover and
- protection provider for those circumstances.
Will I have to pay much for Income Protection Insurance?
Reference to a number of issues determine the cost of this cover. They include your –
- age;
- health status;
- income level;
- occupation;
- type of policy;
- premium basis;
- waiting period; and
- term of cover requested at the time of the application being made.
It is important to establish the cover relevant to optimising the value of the policy to your circumstances.
Which type of Income Protection Insurance cover is right for me?
Since the late-2020 changes to insurance industry regulations Income Protection Insurance policies only offer indemnity policies. These policies are variable in a number of aspects, including –
- the percentage of protection sought of the insurable income;
- the assigned waiting period;
- the term of caver; and
- the occupation definition.
An indemnity policy will ‘indemnify’ the insured for protection as to various levels. The contract you enter schedules details of that protection. (Our website article, Income Protection Insurance, explains some of these aspects in more detail.)
Our advisers will guide you through the current situation as the legislation takes effect.
Does it become more expensive each year: and can I pay the premiums monthly?
Income protection insurance premiums are offered on a ‘stepped’ basis. Stepped premiums increase each year based on your age at the anniversary of the policy.
Insurance premiums can be paid according to your cashflow needs. Monthly and quarterly premium payments are not uncommon. These frequencies vary according to the insurer’s policy at the relevant time. Premiums paid annually are discounted compared to those paid over time.
Do I need to use a Financial Planner to apply for Income Protection Insurance?
Working with a financial planner experienced with Income Protection Insurance policy terms and conditions will provide –
- confidence that you have the right amount of cover,
- under the right policy conditions, and
- suited to your needs in the event of a claim being made.
Our advisers bring their experience and the Continuum Financial Planners client-centric philosophy to your assistance. Through them, you will find understanding Income Protection insurance simplified as to how it best meets your needs.
- They listen to you;
- they develop an understanding of your circumstances from both lifestyle and wealth creation considerations; and
- they find the solution that is in your best interest.
ContinuumFP website Contact facility for prompt attention
For an appointment at a time and place convenient to you, please –
- phone our office, on 07-3421 3456, or
- at your convenience, use the linked Make A Booking facility.
(This article is based on one we first posted in April 2012. It has occasionally been updated/ refreshed, most recently in January 2025.)