Australians typically start to think about income protection when they buy their first house. As mortgage repayments pile up, many of us realise just how reliant we are on our monthly income. After all, many of us have lived payday to payday at one time or another.
The reasons why you’ll need a replacement income will greatly determine the type of product that suits you. Income protection and redundancy insurance are both products commonly thought of to fulfil a person’s needs in a time of crisis.
Income protection policies typically replace up to 70% of your monthly income for a period of time when you get sick or injured and cannot work. This is great news for anyone who is worried that if their income was suddenly cut off due to a health issue, they could still contribute towards their mortgage or car loan repayments, the weekly groceries, maybe even their kids’ school fees.
What is included in an income protection insurance policy, and is it suited for you? We talk about that in our deep dive analysis of income protection cover.
Mortgage protection insurance, also known as ‘home loan insurance’ or ‘consumer credit insurance’, can cover your mortgage repayments in the event of your passing, the diagnosis of a critical illness, or if you are totally and permanently disabled.
It can cover repayments for both residential and commercial properties, and is also available for owner-occupied and investment property loans. We cover mortgage protection insurance in more detail if you’d like to learn more about this product.
An involuntary redundancy benefit isn’t classified as life insurance, as it insures your income, not a ‘life’. Because of this, it’s treated a little differently than income protection.
In some cases, banks will include it as cover, but it may only be offered so you can continue paying for a linked mortgage…and it’s unlikely you’ll be able to access any additional money.
In other cases, you can take out cover that pays a benefit for your redundancy, if certain conditions have been met. You may even qualify for a retraining benefit, so you can subsidise further education to help you get back into the workforce.
Is redundancy insurance part of every income protection policy? Absolutely not. In fact, you should view it as an additional benefit, rather than a standalone insurance product. We’ve written more on the subject if you’d like to learn more about redundancy insurance.
If, after you’ve reviewed the above pages, you feel ready to get covered for real, try our income protection comparison service.
The information provided here is general only and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant PDS.