Income protection is an insurance policy you can take out that will pay you part of your income if you're unable to work because of getting sick or injured. Generally, income protection can pay out:
Every fund offers different benefits and definitions of full and partial disability, which will affect what you can claim. Be sure to read the Product Disclosure Statement (PDS) carefully.
Put simply, if you would be in financial stress if you stopped earning your income today, you could probably benefit from income protection. This will be more likely if you have dependencies, debts, or if you rely on a single income. Here are a few examples:
| Response | |
|---|---|
| I don't have any of the above insurance | 60.54% |
| Life insurance | 32.52% |
| Income protection insurance | 18.38% |
| TPD insurance | 14.32% |
There are few times when you might not need income protection.
No expenses of dependencies: If you have low or no expenses, dependencies or debts, you might not need income protection insurance.
Close to retirement: If you've only few more years in the workforce and have enough savings, your response to sickness or injury might just be to retire early.
Low salary: Income protection is most useful to people earning a lot. If you're on a low salary, you might not benefit from income protection. You could look at Total & Permanent Disability insurance instead, whichpays out if you become permanently unable to work, regardless of earnings.
These aren't the only groups who might not need income protection, and you may still benefit if you fall into one of these categories. You should speak to a licensed financial planner before making any a decision.
Unfortunately, Finder research finds most Australians have far less than 3 month's earnings in their savings. According to Finder's Consumer Sentiment Tracker data from July 2023, around 60% of Aussies have less than 3 months of savings. The full data is in the chart below.
My income protection policy is an insurance I hope I never have to claim on – I consider it to be a financial back-up in case something terrible happens. Is it essential? Probably not, but hopefully it will provide my family with some financial breathing space if and when we ever need it.— Sarah Megginson, Personal finance expert and Aussie homeowner
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