Income Protection Insurance: The Risks of Being Underinsured

Income protection insurance is perhaps one of the most overlooked, yet most important insurance policies that you may need to ensure that your household expenses are maintained. Depending on the amount of insurance coverage that you have opted for, your income protection insurance may cover as much as 75% of your normal income for the period of time that you are unable to return to work, whether it be caused by illness or injury. The income will be paid out to you regularly, as if you were working, and will take place of the regular pay cheque that you generally receive. While many consumers are quick to purchase the cheapest policies, it's important to consider the risks that are involved with being underinsured.

The Amount of Income that Is Covered By the Policy

More often than not, the cheapest insurance premiums simply do not provide adequate coverage, and will not cover the amount of income that you need to be able to pay off your household bills. For example, the cheapest insurance policy may only pay out a small fraction of what your actual income is. If you will be spending an extended amount of time away from work, the debts can quickly pile up, especially if you have medical bills or even caregiving expenses to pay for. 

When choosing the amount of coverage that you need for income protection insurance, you need to first consider the minimum amount of income that is needed for you to pay off all your bills without accumulating any debts. Paying off the debts when you are finally able to return to work may not be easy, especially when taking into account the amount of interest that you may have to pay. Don't forget that your credit score may be severely affected if your bills are neglected.

Looking at Whether the Terms of Coverage Are Ideal

Don't sign on the dotted line without scrutinizing the terms involved with the coverage that you are getting. For example, will your income protection insurance provide you with coverage if you are ill? If so, what type of illness is covered? Will you be covered if you have to take time off of work to deal with an emergency, such as a huge flood that may have damaged the entirety of your home?

Consider the most possible scenarios that you may encounter when determining whether the insurance policies offer the amount and type of coverage that you need. For example, do you live in an area that is prone to flooding, hurricanes or other natural disasters? What is the medical history of your family members? All of these factors will affect the type of coverage terms that may be best for you.


Having income protection insurance can help you sustain yourself financially even through difficult times without having to worry about your bills or how your credit will be affected. Speak with an insurance broker to determine the amount of coverage that you need, along with the type of terms that will be most likely to happen in your situation. 

For more information, check out companies such as A & R General Insurance Services Pty Ltd.