Income protection is particularly crucial for the self-employed who are not covered by a superannuation scheme, but can also be valuable for anyone with substantial financial commitments such as a mortgage or personal debts.  The purpose of such a products is to ensure that you and your family can maintain a good standard of living while you are unable to work.

Many people fail to realize that their earnings capacity is their most valuable asset, and should be protected by insurance.  Income protection policies can offer very good value for money, if you take into account the potential level of lost earnings during a prolonged period of absence from work. 

Most income protection policies will pay up to 75% of the policy-holder’s usual income on a monthly basis, either for an agreed period of up to five years, or even up to retirement age depending on the policy and level of premiums that you choose.  Premiums are based on a number of factors including gender, age and occupation, and are tax deductible, although the payouts themselves (when and if required) are subject to tax. Definitions of sickness and disability vary widely between different insurance companies, but are usually based on being unable to carry out specified aspects of your normal work.

There are two main types of income protection policy.  “Indemnity” contracts, under which cover is based on a percentage of the policyholder’s income at the time a claim is made, are most common.  “Agreed value”, with higher premiums, provide cover for an amount agreed at the time the policy is taken out, and are mainly suitable for those with fluctuating incomes.  Premiums can usually be reduced by extending the waiting period until benefits become payable, if you have sufficient income to cover this period.

You may be able to get a good deal by taking a combined life insurance and income protection policy, but be sure to shop around to find the best policy for you – by using services such as the Artog Life Insurance comparison.