Income protection insurance provides up to 75% of your salary should you become ill or injured, and is also tax deductible.
Generally speaking, income protection insurance does not cover redundancy. However some insurance companies have certain income protection insurance policies available which may cover your mortgage for a certain period of you are made redundant.
One example of this is CommInsure’s Unemployment Cover Benefit where if you have income protection insurance through CommInsure and become involuntarily unemployed, CommInsure will pay a monthly benefit to help cover your minimum monthly loan repayments for up to three months. This applies to Commonwealth Bank loans only.
Be wary of income protection which includes redundancy!
If there is any type of insurance which offers to fully protect you against unemployment or redundancy, it is often too good to be true. This statement particularly rings true for credit protection insurance.
Credit protection insurance (also called consumer credit insurance) will make a payment in the event of unemployment, redundancy, death, terminal illness and disablement. This type of insurance can cover your debts such as credit card, home loan or personal loan debt and repayments.
It is generally available with a mortgage, personal loan or credit card. Credit protection insurance is optional and in no way connected to mortgage insurance, which is usually compulsory if you have a home loan deposit of less than 20%.
Credit protection insurance is often sold as a package, such as combined disablement and unemployment covers. If your claim is accepted, your debt is usually covered in the case of death or terminal illness and the repayments for disablement or redundancy. This type on insurance may not cover pre-existing conditions, so make sure you read the fine print. You should also be aware of the hidden catches and traps:
- It’s very expensive – for a similar premium you may be able to buy $500,000 worth of life insurance compared to only $2500 worth of credit protection insurance. The life insurance policy would leave your family 200 times better off in the case of your death.*
- More claims are rejected – About 12 out of 100 claims are rejected, which is much higher than most other insurance options. Only 1% of policy holders make a claim due to the very tight exclusions often found in credit insurance contracts*
- Lower percentage of premium income used claim payouts – Only 15% of premiums income is returned in claims payouts to policyholders. This makes it very profitable for insurers and lenders who usually receive a 20% commission. Other types of insurance on average use 74% of premiums for claim payouts to policyholders.*
While the benefits do differ, credit protection insurance is generally more expensive than income protection insurance or life insurance. It is imperative that you closely read the Product Disclosure Statement (PDS) of any insurance product to ensure it offers adequate cover and also meets your needs.
Protect your lifestyle & loved ones with income protection
Contact xLife to discuss your income protection needs or to receive free income protection quotes. If you need money to cover your expenses during extended leave from work due to sickness or injury, you can bridge the gap with Income Protection Insurance, rather than redundancy insurance or unemployment insurance. The funds from income protection cover can help pay for bills and living expenses.