Income Protection Insurance - Not For Unemployment!

The internet has made life very easy in a lot of ways

. However, it has also created a lot of confusion! Much of the insurance discussion available on the net is US- or UK-based, and our Australian insurance industry is quite different. Today we check out a common misconception when buying income protection insurance - that it will cover you for unemployment.

What does income protection insurance actually cover?

Overseas, income protection cover will often cover you for involuntary unemployment. While the taglines or advertisements for different policies might say "What would happen to you if you were unable to work?", they actually mean "What would happen if you were unable to work due to your own sickness or injury?".

Income protection insurance policies are similar to the old sickness & accident type policies; however there are some key differences. Income protection policies have a set benefit period of usually 2 years, 5 years or until age 65. Whereas most of the sickness & accident policies had life time benefits and therefore paid until you passed away!

What doesn't income protection insurance cover?

In Australia, income protection insurance doesn't cover:

Redundancy

Being fired

Being unable to work due to carer obligations (a sick child, for example)

Being unable to work for any other reason (for example, loss of transport)

What insurance does cover unemployment? Some mortgage protection policies may have involuntary unemployment clauses, although of course it will only be your mortgage repayments that are covered, not general living expenses. These types of policies often offer very limited benefit periods of 3 or 6 months.

So is income protection insurance still worthwhile?

Yes! It may not cover involuntary unemployment, but it does cover you for the far more serious and usually much longer-lasting implications of illnesses and accidents. Government benefits are usually woefully inadequate, and for those with any debts or obligations, standard income protection insurance can be a lifesaver.

by: Hilary Briss

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