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Do I need income protection insurance?


Life can be an unpredictable beast. While it's easy enough to cruise along on auto-pilot, there are times when you need to be proactive and make sure you've got all the measures in place to protect you and your family in case of an emergency.

This is especially the case with your income. Would you be able to provide for your dependants if you were suddenly unable to work? It's a question a lot of people forget to ask themselves, but it's something that could actually make the difference between comfort – or unexpectedly falling into fiscal trouble. 

Research has shown that Australians are some of the most underinsured people in the world. In fact, a study from Rice Warner shows that only 37 per cent of the working population have income protection insurance. However, you can avoid being one of these statistics fairly easily. Here are reasons to consider income protection insurance.

Why do I need it?

Falling ill or getting injured isn't something we like to think about all that often, but it's something that can affect any of us at any time. Think about it this way: According to a report from Lifewise/ NATSEM, one in five Australian families will be impacted by the death of a parent or a serious accident or illness that means a parent will be unable to work. 

Sometimes known as income continuance insurance, income protection insurance can therefore be a great way to safeguard your finances and cover your expenses if things ever took a turn for the worse. It can make up for 75 per cent of your gross wages for a set time period, according to the Australian Investments and Securities Commission.

This is particularly the case for self-employed people or workers whose income relies heavily on their ability to work. If you're in the mining sector, part of the construction industry, or other similar labour-based jobs, income protection could be a good route to take. 

How much do you need?

The premium you pay can be based on any number of things – your age, gender, health and occupation, as well as the type of cover you choose. Your financial adviser can help you determine what kind of cover you'll need to take out, but it generally depends on your current lifestyle, and even your future plans.

Have a think about what you and your family need to pay to maintain your current lifestyle, such as mortgage payments or other loans, and how much you estimate you'll need to cover things like schooling, holidays or investments further down the line. 

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