Income Protection Calculators

Income protection insurance is a vital part of any financial plan, so it worthwhile doing your research to find the most competitive premium without compromising on the quality of cover.

What is Income Protection?
In Australia, income protection insurance pays a monthly benefit up to 75% of your salary from personal exertion should you become ill or injured. Your monthly benefits are accrued after your selected waiting period, usually 14, 30, 60 or 90 days or up to 2 years.

The income derived from the following is usually not defined as ‘income’ under a typical income protection policy: overtime payments, bonuses, penalty or shift allowances, investment income, income received from deferred compensation plans, disability income policies, commissions, retirement plans or income not derived from non-vocational activities.

Types of Income Protection Calculators
There are a number of Income Protection Calculators available on the internet through various providers who either compare or offer income protection insurance.

There are two main types of income protection calculators available online:
1. Cost of living calculator – this type of calculator helps you calculate the living costs you may accrue over a one month period.
2. Value of cover calculator – this type of calculator calculates 75% of your salary.

Both types of income protection calculators only offer an estimation of either how much you should be covered for, or how much you might pay monthly in premiums. The key word here is ‘estimation’ – income protection calculators will only give you a rough idea of how much income protection insurance ‘might’ cost you.

Should you use income protection calculators?
There are a number of factors that online calculators assume, factors that can increase or decrease the monthly income protection premiums you might pay. These factors assumes include things like:
• Not including your sick leave to calculate your waiting period
• Calculating your sick leave at the full rate of pay
• Not taking into account your age, gender or occupation
• Generally use ‘clerk’ occupation rates which only cover a small percentage of people

In reality, a life insurance company will calculate your premium by assessing your entire personal exertion income. Therefore your premium will always vary, and a life insurance company might also apply premium loadings and exclusions depending on your particular situation, occupation and medical history.

When considering income protection insurance, income protection calculators should not be relied upon for the purpose of making a decision.

Get financial advice on income protection
You should consider obtaining advice from a financial adviser before making any final decisions. You should not make a decision on income protection insurance based solely on income protection calculators.

Getting financial advice on income protection is always valuable. A qualified and experienced financial adviser, particularly one who specialises in personal insurance and risk management, can help you find the right income protection policy by comparing multiple income protection policies from different life insurance companies and finding the most competitive premium for you.

A financial adviser can also offer good advice on which type of income protection policy suits you (agreed value income protection or indemnity value income protection), and the pros and cons of having your income protection policy inside or outside of your superannuation fund.