Do you need Income Protection Insurance?

How would your life change? Most Australians have an “it won’t happen to me” attitude, but not being paid a regular income due to illness or injury is the reality for tens of thousands of Australians each year.

In fact in 2013 alone, more than 48,000 people claimed a total of $1.26 billion in income protection insurance, according to statistics released by The Risk Store. The leading causes of claims were:

Musculoskeletal
Mental Illness
Cancer

Rather soberingly, these statistics reflect only those workers who had income protection insurance in place and were able to claim. According to a recent research project undertaken by KPMG, commissioned by the Financial Services Council, Australians are underinsured against disability to the tune of $304 billion.

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Some questions to ask yourself:

Could you afford the following costs, if you were not earning an income for an extended period of time?

Your mortgage?
Your car insurance, service and rego?
Petrol?
Your telephone costs?
Gas and electricity?
Your health insurance?
New clothes?
Your children’s education and activities?

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What does the average household spend?

According to ASIC’s Moneysmart, the average household in Australia spent $69,166 on general household living costs in 2012 (most recent figures available). Of course, the amount per household varies by life stage, with average figures for some common working-age household groups being:

Life Stage	$ spending per week	$ spending per annum
Lone person aged under 35	$869	$45,188
Couple only	$1,429	$74,308
Couple with young kids (eldest child under age 5)	$1,484	$77,168
Couple with older kids (eldest child between 5 – 14)	$1,670	$86,840
Couple with teenagers	$1,900	$98,800

Source: moneysmart.gov.au

By comparison, the maximum level of Disability Support Pension available via the government is $383 per week for a single person or $288 per week for a member of a couple. That level of income discrepancy is certainly food for thought…

How income protection insurance can help

Income protection covers part of your salary (commonly 75%), if you are unable to work due to illness or injury. You can choose a waiting period (the amount of time that you must be off work before you can begin claiming a benefit) and a claim period (the length of time that the policy will continue to pay you, which may be as short as 2 years or as long as to age 65). The purpose of income protection is to provide you with a regular income during any temporary or permanent incapacity. And while it won’t cover your full income, it would hopefully be sufficient to maintain your lifestyle.

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