Jess’s Story: The Importance of Income Protection Insurance

When life throws you a curveball, certainty is everything. Jess found that out the hard way last month, when she slipped on her stairs and ended up with a nasty ankle injury that needed surgery.

With a lengthy recovery ahead of her, Jess is now off work for at least 2 months – and that’s no easy feat, considering she works 30 hours a week as a learning support assistant and another night a week as a disability support worker, raking in a tidy $2,360 per week. But her story is all too typical for Aussies like her – and it highlights a harsh truth about income protection.

According to Safe Work Australia, only a tiny 3.5% of workers come to harm on the job over the course of a year. Most people who can’t work won’t qualify for workers’ comp, and that’s because many injuries don’t happen at work at all – they happen at home or while you’re out kicking a ball around. And that means relying on workers’ comp alone can be a riskier strategy than you might think.

Jess Had the Right Safety Net

Luckily for Jess, she’d done the smart thing and taken out an income protection policy that covered her full income – not just her main gig. And because she’d recently taken out the policy, she was eligible to claim a large chunk of her income while she was out of action.

• For the first 6 months, she could claim up to 90% of her income of $2,360 per week – that’s a real life-saver.
• From there on in, she could claim up to 70% of her income until she turned 65 – depending on her policy terms, of course.
• Her benefit would be calculated as a percentage of her monthly income, and payable monthly after a short wait.
• And if she’d stayed with her employer, her benefits might be indexed over time, so her payments would keep pace with inflation.
• All this would be paid out based on her actual income, and not some minimum amount, which is a lot more reassuring than having to live on the breadline.

Why Comparing Policies Matters More Than Ever

Income protection policies are all over the place when it comes to features and benefits. Some providers offer a higher percentage of your income, but limit how long you can claim for to 5 years. Some charge wildly different prices for the same policy. And – spoiler alert – policies bought online tend to fare a lot worse when it comes to getting paid out than policies bought with the help of an advisor.

• For instance, some policies offer a flexible benefit period of 2 years, or 5 years – it really does pay to shop around and compare the fine print.
• Policies held in a super fund may have different features and limitations – and you’ll definitely need to wade through the Product Disclosure Statement to figure out what you’re getting.
• And don’t even get me started on exclusions – these are things that will render your policy useless in the first place, so make sure you know what you’re getting.

A Tailored Strategy Can Make All the Difference

With all these moving parts, it’s no wonder that some clients think it’s worth having two policies. One with a short wait and a short benefit period, and another with a longer benefit period but a longer wait. And in some cases, splitting your policy between your super fund and a personal ownership policy can be a great way to get the best of both worlds, and save on tax.

But it’s all about getting good advice – and that’s where a good advisor can really deliver the goods.

What If Jess Had Been Injured at Work?

If Jess had hurt herself on the job, her income protection benefit would be reduced by any workers comp payments she received. That’s because the work benefit in her income protection policy is there to top up her income if she’s unable to work due to an injury – not replace it in full.

In Victoria, for example, if Jess got hurt on the job, she’d be entitled to 95% of her pre-injury earnings for the first 13 weeks.

Let’s Run Through an Example Scenario

Let’s say Jess had a policy that covered 75% of her income of $2,360 per week. She had a 14-day wait and got injured at work in Victoria. Her income protection benefit would be $1,770 per week. Victoria’s workers comp would pay out $1,672 per week – so Jess’s income protection would top up the shortfall by $98 per week.

High Income Earners: The Income Protection Premiums Gap Is Even Bigger

Income protection nowadays is capable of covering up to 75% of incomes that are easily in the neighbourhood of $300,000 per year. Workers’ compensation may have an upper limit as low as 95% of about $146,000 in some states, however.

If someone with a high income is relying solely on workers’ comp, their replacement income usually is not going to cut it. A well-planned income protection strategy can help fill in the gaps.

Without any decent income protection in place, a high earner might find themselves under a lot of financial pressure should their replacement income not quite be up to their normal standards of living.

Getting The Right Help and Advice

Figuring out which income protection insurance policy is the right one for you can be just as complex as it is overwhelming. Having someone who knows what they are talking about to guide you through it can make all the difference. Working with a qualified financial adviser is probably one of the most important steps you can take when looking to put together a decent income protection plan that actually meets your needs.

A good financial adviser will sit down with you and compare all your different income protection policy options. They’ll explain all the benefits, all the exclusions, and every other feature of each one, helping you to see which one fits best with your personal circumstances and financial goals. They will also help you figure out how much income protection you need, taking into account your income, your monthly expenses and your overall financial situation – all so that your income protection policy is providing you with the right level of support when you are in need.

One big advantage of getting income protection insurance is that, in many cases, the premiums you pay are tax-deductible. Your adviser can show you how to make the most of this, helping you put your policy and premiums together in a way that fits in with your overall financial plan and that minimises the tax you pay.

When selecting an income protection policy, you need to think about the waiting period (how long it is before the monthly payments kick in) and the benefit period (how long you will get income protection benefits for if you are unable to work). A financial adviser can go over these with you and find the right balance between getting the right level of protection and keeping your premiums affordable.

If you are self-employed or if you have a variable income, income protection insurance is particularly important. A good adviser can help you find a policy that is tailored to your specific needs and that will give you a safety net – so you know you’ve got some money coming in no matter what.

Getting an income protection policy usually involves telling the provider all about your medical history and job. This helps the insurer figure out how much your premium will be and what any exclusions might be. Your adviser will be there to walk you through the whole process, making sure you know what you need to do and helping you get the best possible deal on your premiums.

Income protection is just one part of a full financial plan, which might also include life insurance or total and permanent disability insurance. A financial adviser can sit down with you and look at your overall situation and help you figure out the right mix of insurance products to support your loved ones and keep your financial future safe.

The end result is that getting some genuine professional advice will give you the confidence that your income protection policy is tailored to you and your needs, and not just some generic, off-the-shelf solution.

The Bottom Line: Seek Out a Financial Adviser

Jess’s story brings home the uncomfortable truth that most injuries happen outside of work, and workers’ comp alone usually won’t cover everything. Having the right income protection in place – and getting the right advice – can make a huge difference.

Your income is your most valuable asset, and making sure it’s properly protected isn’t just a financial decision – it’s also about having peace of mind.

Get in touch with us to protect your income today.