Income protection insurance needs little explanation in that its name says it all. It is insurance to ensure you still receive an income after your sick pay period has expired and you would otherwise be left, too ill to return to work, with no means of creating a livable income for yourself, or your family. Such a situation is commonplace but one that can be avoided. Many people who find themselves in such a situation can gain access to government welfare benefits but this amount is often too low to keep the mortgage or rental payments up to date, let alone pay for the general running of your household.

Income Protection Insurance Prevents Financial Distress in Times of Need

Income protection insurance will protect both you and your family from financial distress in circumstances beyond your control. Knowing you have income protection insurance will also give you the added confidence of being able to carry on with your life’s plans because you will know that no matter what happens you will receive a monthly benefit, sometimes up to 80 percent of your previous before tax earnings. You can use it for whatever you choose but most people find it invaluable for the following reasons:

• Paying your normal household bill while you go about recovering in a financially stress free environment.
• Keeping your car payments up to date therefore not having to deal with repossession agents.
• Continuing with your mortgage or rent payments therefore keeping a roof over you and your families heads.
• Preventing you from having to eat into your savings therefore when you recover you can continue with your life as your were doing beforehand.

Income Protection is a Risk Aversion Insurance

Income protection insurance is a risk aversion  move that takes away the risks involved in every day living. None of us are able know when we are likely to suffer an injury or contract a serious illness. We can take all the precautions we like but even then can suffer a setback at any time. It only stands to reason that such a risk is not worth taking when you have so much at stake. The following figures can give you an indication of what the actual risk is:

• Accidental injury accounts for 35 percent of claims made for income protection insurance.
• Musculoskeletal disease is responsible for 18 percent of claims.
• Mental illness is named in15 percent of claims made.
• Lung diseases, such as emphysema, is named as the reason for making nine percent of claims.
• Cancer claims are paid out for eight percent of claimants.
• Diseases affecting the nervous system are given for six percent of claims made.
• Heart disease and other conditions affecting the circulatory system are responsible for people making five percent of claims.
• Diseases of the digestive system are given as the reason for the illness for four percent of total claims made.

To put it into a better perspective, 858,000 Australian workers were unable to work for an extended in a 12 month period. Twenty five percent of them were back doing their job again within six months. Income protection insurer Asteron alone paid out an amount of $77 million in income protection and business expense insurance claims during that period. We all know that accidents and the contracting of a serious illness can occur at any time. In fact we all know of someone who has been forced to take an extended time off work because of injury or illness. Income protection insurance can save you from the financial stress involved should you unfortunately become one of these statistics.

What Amount of Income Protection Insurance Do You Need?

The amount of income protection insurance needed by different people will depend on many factors you can take out insurance for up to 80 percent of your pre tax income that your were earning before finding yourself in the unfortunate position of having to make a claim. Although you might not need that amount as you:

• Won’t be travelling to work while you remain incapacitated.
• There will be no extravagant fuel bill to pay.
• No parking fees.
• No other transportation costs and no take away lunches.
• You will probably be able to cancel your gym costs.
• You won’t be out entertaining.

You will be quite surprised at how much you can actually save by not being as active as you were before. Although other member of your family will still be clocking up the same expenses as they were before you became laid up.

All these matters will have to be determined before you will come to the amount you will need to enable you to continue with your financial life much as you could before. What you will need to make sure of is that the mortgage or rent payments can be met, the car payments can be secured and your family’s every day living costs fully covered. You are now ready to go to your financial advisor and begin talks on  the best type of income protection policy you can obtain at the most economical price.