Do I Need Income Protection Insurance?
Viewed by many as an added long-term expense, its natural why most people are hesitant to acquire income protection insurance. Often, there’s a need for a change in perspective from seeing it as a cost to an investment so the need for income insurance can be properly assessed. Before delving into why it may be essential, let’s begin with establishing a firm understanding of what income protection is and why a person would choose to get insurance.
What is Income Protection Insurance?
One reason why people don’t obtain income protection insurance is because they don’t understand its value. Income protection insurance covers a portion of your earnings in emergency situations when you’re rendered unable to work.
Specifically, this insurance covers cases of sickness or injury and usually consists of compensation up to 75% of your gross salary.
Some policies though, offer an “agreed value” that you can claim which is agreed upon at the time the policy is acquired. There may be a specified benefit period of say 5 years for when your income will be covered, however some policies provide longer benefit periods, up to age 65 and even lifetime benefits which allow for income for the entire period until you’re able to resume work.
Why Would I Need Income Protection Insurance?
We tend to prioritise insurance policies for our homes and cars, guaranteeing that these will be replaced when problems arise. However we often fail to recognise that these assets were acquired from our income stream. Therefore why would we not insure our most important asset, the ability to earn an income?
Some important questions to ask yourself are:
How long can you afford to be without income?
Even if you’re employed and the company provides income insurance, often referred to as Salary Continuance Cover, it’s best to check the terms and conditions of the policy as these benefit periods are often limited to 2 years
When the need to claim arises, there’s a specified waiting period anywhere from 30 to 90 days and sometimes longer before you can claim.
Durations vary per policy and financial insurance provider. What other company benefits could you help get through this time? The most common thing would be your leave balance. The next thing to consider would be your personal finances and the availability of emergency cash.
If you think the benefit period (say 2 years) of your company-given insurance is too short, it’s best to secure your own income insurance policy that would cover you for longer periods of sickness or accident.
Are you self-employed?
When you’re a business owner, freelance professional or similar, you have less of a financial safety net as your income largely depends on you and your ability to work. While employees have paid leave and company income protection insurance in cases of emergency, the freedom of working independently comes with foregoing these benefits as one of the trade-offs. Self-reliant professionals are solely responsible in making certain that they have resources to support them in situations when they are incapable of earning. Securing an income protection policy is a must have financial option.
Would it provide you with peace of mind?
One alternative to getting income insurance is to self fund in the event of sickness or accident by having a savings plan.
This banks solely on your ability to properly plan your expenditures and sticking to your budget. A similar discussion is often had for those not wishing to take out Health Insurance.
The long term financial burden of having to rely on savings can be financially debilitating.
Most people feel that relying on savings alone is not enough, especially due to the impact this has on things such as retirement planning. In addition, for reasons such as the urge to spend or unexpected expenses that arise, may dwindle savings. Obtaining a personal income insurance policy offers guaranteed financial security and certainly adds to your peace of mind all for a tax deductable investment
Income protection insurance is too often shoved to the sidelines to make room for other expenses, when ideally we should be securing our income first and foremost.
For more information or to book an appointment to discuss your income protection insurance for you, contact our expert team.