Income Protection insurance

The most important asset a person has is the continued ability to work and generate an income. Income protection insurance allows people to insure a major portion of their income - generally 75 per cent of their gross annual salary including superannuation contributions - in case they are unable to work following sickness or an accident.

Income protection insurance is the most expensive form of life insurance. However, it is also the most flexible from a cost perspective.

You can reduce premiums by accepting longer waiting period, before the insurance benefit starts paying, and by reducing the length of time your benefits are paid.

A standard employee eligible for two weeks sick leave might be able to combine that with a couple of weeks holidays and some savings. Therefore you might decide on a one-month waiting period.

However, self-employed people do not normally receive sick leave or holiday pay. And unless they have access to a significant amount of savings, might opt for a period of 14 or 28 days before their payments start to kick in.

Or you may elect to pay an additional premium for accident cover to commence after being off work 3 days. Another choice is how long the benefit will be paid for. Insurers offer varying periods of cover, but most policies offer benefit payments for two or five years, or until age 60, 65 or 70 yrs.
Source is:  www.insurancewatch.com.au/why_insure

A study completed by AMP Life found less than 6 per cent of working Australians have income protection insurance. Income protection insurance is generally tax deductible as benefits paid are considered by the Australian Tax Office as assessable income. 

Guide to using Insurance to transfer risks