Do I need income protection insurance?

Not being able to work due to illness or injury isn't all Oprah marathons and shower-free weeks. With bills coming in as usual, you'll need an income stream adequate to your usual expenses.

If you have dependents, a partner who relies on your income to help meet expenses, and/or a mortgage or loans, income protection could be vital to maintaining your family's lifestyle should you fall ill.

You might also decide to take out income protection for a limited time — for example, until your children are self-sufficient, or you pay off your mortgage.

How does income protection work?

First, there's a waiting period. You choose this with your policy — usually 2 weeks to 2 years — and it reflects how long you could afford to be off work before your income protection payments kick in. (Note a longer period should mean a cheaper premium.)

If you're off work with a covered illness or injury monthly payments will be made after the waiting periods.

These continue for the benefit period, which is the maximum time over which you'll receive payments (regardless of how long you're unwell). This is also set by you upfront, usually at 2 or 5 years or until the age of 65.

The maximum benefit is 75% of your gross income, but you can opt for less when you take out your policy.

The premiums on your income protection are tax deductible, and any benefits paid count towards your taxable income.

Some insurers let you choose between agreed value and indemnity contracts.

• Agreed value income protection insurance involves a set monthly payment established in your policy.
• Indemnity income protection insurance means the monthly benefit is assessed when you make a claim.

How are income protection insurance quotes determined?

Insurance quotes take into account personal factors such as your age, medical history and occupation, along with policy preferences such as the waiting period, benefit period and maximum benefit.

• Basic income protection insurance covers a range of illnesses and injuries that could lead to a period off work, and comprises a cheaper income protection option.
• Comprehensive income protection insurance includes a wide range of events to provide the highest amount of cover (typically at a higher premium).

What benefits does income protection insurance cover?

Most basic income protection insurance covers such things as:

• no insurance premium while you're on claim
• option to return to work during the waiting period
• recurring disability benefit
• death benefit
• elective surgery, transplant or cosmetic surgery benefit

Comprehensive income protection insurance can also include:

• indexed benefits
• worldwide cover and payment while overseas
• HIV/AIDS inclusion
• shorter or no waiting period for injury from accident
• accommodation, transport and home assistance
• no claim bonus
• higher benefit for specific illnesses
• retraining benefit
• cover past the age of 65

Check specific policies to make sure factors that matter to you are included. Compare income protection insurance now.