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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