Taking out income protection insurance is not a child’s play; it needs good planning, good comparison and good calculation. Good planning involves starting early, for good comparison you can compare insurance at incomeprotectiondirect.com.au and get the best deal from different players in the insurance industry. Finally comes the good calculation, it is important that the income protection insurance you take serves you in the hour of need so unlike health insurance and life insurance it will not be helpful if you take a namesake income protection insurance.
Good calculation involves knowing how long you could manage your lifestyle or support dependants without a regular income. You will need to start by calculating where your income goes. If the expenses are shared, you can just put one person’s share to get the calculation right. Given below is an example:
Rent or mortgage – $1250
Household expenses (electricity, repairs) – $350
Conveyance (vehicle or transport- fuel or bus fare) – $250
Food and grocery – $525
Childcare / education – $425
Miscellaneous – $200
Monthly expense – $3000
Of course the expenses differ from family to family. There are also certain expenses like clothing and entertainment that are discretionary, so generally not included in insurance calculators.
Then there are other questions to answer like what is the mode of your income, are you self employed or working for someone else? If you are employed by someone, how many days of sick leave can you afford? Sick leave is generally paid at full pay rate. Is your sick leave supported by other means like some companies will allow the employee to take leave for certain number of months on half salary etc especially if the injury or illness is work-related or do you have the superfunds income protection? Remember that superfunds do not provide full income protection and are valid for a specific period of time only. Do you have any savings to fall back on? Here again you should include everything like the example given below:
Cash in hand – $1000
Managed funds – $500
Savings term deposit – $500
Shares – $2500
Total savings available immediately – $4500
Next you need to calculate how much time you have before you have to change things? Here there are 3 specific questions to answer
1. Number of months you can survive before you need to sell liquid assets of make lifestyle changes
2. How many days can you survive before you need to sell liquid assets of make lifestyle changes
3. The date or month you may need the other income if today you were to become totally disabled.
This calculator only acts as a guide to know how much cover you should take. If you compare insurance at incomeprotectiondirect.com.au you will be able to get a better idea of how much you need and how much you will have to pay. Another important thing to remember is premiums on income protection are tax deductible so if you plan and get a policy right away, you can save a lot on the tax too.