Income protection is a form of insurance that provides a benefit of up to 75% of your salary in the event that you are unable to work due to sickness or injury. It is often called temporary salary continuance if taken through superannuation.

It is designed to provide regular payments to replace your income capped at a maximum of 75% of your income. Some policies provide an extra amount to cover superannuation contributions.

The three main variables in the cost of an income protection policy are the dollar amount of the benefit, the benefit payment period and the waiting period.

You may apply for a benefit of up to 75% of your income but you don’t have to ask for that amount. By reducing this amount you will reduce the cost pro rata.

The length of the benefit period varies from a 2 year period to a period from your current age to when you reach age 65. The greater the benefit period the greater the cost.

Policies usually have a waiting period before you start being eligible for the benefit. These range from 2 weeks to 2 years. Again the longer the waiting period the lower the cost. When deciding on an appropriate waiting period you might wish to consider; accumulated sick leave, accumulated holiday leave, long service leave and readily available savings and of course your household budget.

The maximum benefit period of 75% is designed to provide an incentive to the claimant to actually go back to work. It is in the insurance companies interest to encourage claimants to return to work. When deciding on your

If you also have Total and Permanently Disability (TPD) cover, your injuries or health may trigger this cover. In many cases this will bring to an end of the income protection policy.

As with all insurance policies if you have an existing medical condition and do not declare it then you will probably invalidate your policy.

Income protection policies vary greatly in regards to benefits and requirements, you need to be vary careful as to what your policy does and does not provide.

Disclaimer: Income protection is a complex product. To get the right product for your needs we highly recommend that you get advice from a Financial Planner.