What is income protection and should you have it?
To help answer these questions, the ANMJ spoke to HESTA’s South Australian Advice Manager Lisa Moran to clarify what income protection is and explain some of the ways it is used by HESTA’s members.
ANMJ: What is income protection?
Lisa Morgan: Income Protection (IP) Cover is an insurance policy that provides a monthly benefit to help you and your family meet ongoing living expenses, in the event you are sick or injured and cannot work.
IP allows a person to continue paying for life expenses such as mortgage repayments, rent or additional medical expenses, when they no longer have income from work.
There are three parts to income protection:
- The monthly benefit: this is how much a person will receive monthly. A person can insure up to 85% of their gross income.
- The waiting period: this is the length of time a person will need to support themselves prior to receiving their monthly benefit. Waiting periods on HESTA’s IP cover can either be 30, 60 or 90 days. The waiting period is determined at the start of the policy, not when a claim is made.
- The benefit period: this is how long the policy will pay a person for while they are sick or injured. HESTA’s IP benefit periods can be for up to five years, to age 60 or to age 67. The benefit payment period is determined at the start of the policy not when a claim is made.
ANMJ: Why do people consider taking out income protection for themselves?
Lisa Morgan: People take out IP insurance to ensure they can continue to pay for life expenses even when they are sick or injured
ANMJ: What sort of things should clients be considering when they decide to take out income protection?
Lisa Morgan: When a person takes out IP, they need to consider the following:
- How much money they need if they were to get sick or injured – the higher the monthly benefit the greater the cost of the insurance policy.
- What waiting period do they need? Considerations include how much existing sick leave or annual leave a person may have or other sources of income such as savings that could assist with ongoing living expenses.
- How long does a person want the policy to pay them for, in the event they are sick and injured?
- How much they can afford to pay for cover
ANMJ: Are there any legal obligations or requirements that need to be met to make use of certain income protection products?
Lisa Morgan: Generally, if a person is looking to increase or take out an income protection insurance policy, they may need to undergo an underwriting process (even where cover is assigned automatically by default, there may be eligibility conditions that apply).
They will need to complete an application form and answer questions about their medical history.
ANMJ: How can income protection protect a consumer’s long-term superannuation interests?
Lisa Morgan: An IP policy can protect a person’s superannuation interests because without IP, some people may need to withdraw from their superannuation if they fall into financial hardship.
ANMJ: Are there any other similar sorts of insurance offerings that are adjacent to income protection that people should consider if it meets their needs?
Lisa Morgan: There are four types of insurance:
- Income Protection
- Death Cover – this policy can be held through superannuation or outside super.
- Total and Permanent Disability – this policy can be held through super or outside super.
- Trauma policy – this policy can only be held outside of super.
More information on the products related to income protection and other insurance that HESTA offers can be found here.