The pros and cons of income protection insurance

The pros and cons of income protection insurance blog

Aussie tradies are known for doing back-breaking work. They can be operating heavy machinery, dealing with live wires, and working long hours under the sun. However, no matter how tough tradies are, work-related injuries and traumatic accidents are a constant concern in the industry. That’s why you need to prepare for these risks with income protection insurance.

What is income protection insurance? 

Income protection insurance pays up to 75% of your income when an injury, illness, or disability prevents you from doing work.

The difference between income protection and worker’s compensation is that payouts for the latter may not cover much of your salary. Plus, worker’s compensation only applies to injuries sustained in the job site. If you injure yourself playing footy with your friends on the weekend or get in an accident outside the workplace, income protection insurance has you covered.

There are several upsides and downsides to this type of insurance, and we explore each of them below.

The pros

Suitable for business owners and sole income earners

If you run a business or are a self-employed tradie, income protection insurance is a great investment for many reasons. For starters, self-employed tradies don’t have access to sick leaves and worker compensation offered by larger employers and contractors.

Secondly, income protection insurance keeps the money coming into your business if you ever suffer an unexpected illness and need time to recover. More importantly, it is a financial lifeline for sole breadwinners. It can help you pay the bills, bring food to the table, and support the people who rely on your monthly income.

Can provide short-term payouts and long-term protection

What’s great about income protection insurance is that there are plans that can fit your job, budget, and personal needs. You can opt for short-term payouts if you’re worried about paying rent or outstanding debts as you’re recovering from illness. These payouts are anything between a six-month and two-year period, ensuring you’re financially stable if you suddenly find yourself out of action.

On the other hand, applying for long-term insurance plans gives you monthly benefits up to five years or until a fixed date. For instance, you can have a plan that covers you until you’re 65 in case a disability or health issue prevents you from going back to work.

The long-term option requires you to pay more for insurance premiums, but you’ll have a guaranteed safety net. This is especially important if you work in dangerous, accident-prone occupations like construction and electrical.

Covers additional costs related to injury

In addition to monthly compensation, income protection plans provide extra benefits depending on your circumstances and injuries. Some providers can help cover costs for rehabilitation programs or necessary equipment on top of your income protection benefits. Meanwhile, others may reimburse you for transport costs to the hospital, offer additional payouts for traumatic injuries, and subside elective surgery treatments. Make sure to read all the conditions set by your insurance provider to see if you’re eligible for these benefits.

Peace of mind for those unable to work

It’s easy to succumb to massive stress and anxiety when you have to take time off work for an extended period. It could be because you won’t have a steady income or you’re unable to support yourself and your family. Whatever the case, worrying about uncertain cash flow is detrimental when your first priority should be focusing on getting better.

Applying for income protection insurance eliminates these stressful situations. It assures that your family will be provided for and your day-to-day expenses will be taken care of. Certain plans even pay additional benefits if family members take time off work to care for you while you’re confined to a bed. There are also packages that cover other expenses, like childcare and housekeeping, when you’re unable to do them yourself.

The cons

Pre-existing medical conditions affect premiums

One downside to income protection insurance is payments on premiums will vary based on pre-existing medical conditions. For example, chronic injuries or heart issues may increase insurance premium payments because they’re likely to put you off work for a long time. Smokers may also have to pay expensive premiums because they’re perceived to have a higher risk of lung disease and other debilitating illnesses.

Additionally, working in the trades industry means you would have to pay a larger amount for income protection compared to other industries. This is because tradies often have to work in hazardous environments where the risk of injury is high.

Longer waiting period for certain insurance policies

Income protection insurance policies typically have a waiting period between 30–90 days, which means tradies may have to rely on sick pay. Self-employed tradespeople and small business owners don’t have this option and will have to dig into their savings while waiting. Otherwise, they’ll need to appeal to insurance providers to waive the waiting period to start receiving payments right away.

Policy exclusions in the fine print

Depending on the insurance provider, there may be specific conditions in which they won’t pay you income protection benefits. Most providers won’t pay out for injuries caused deliberately by yourself, resulting from illegal activities, or sustained during riots. These are fairly self-explanatory, but you may also be excluded from insurance benefits based on medical conditions, activities outside work, and the likelihood of injuries in your job. Insurance providers set these exclusions to minimise risk to their organisation.

Is income protection insurance right for you?

Overall, income protection insurance can’t be dismissed as just another expense. It’s a solution that supports tradespeople through trying times and ensures their continued health and well-being. However, when it comes to finding the right insurance plan for your business, you’ll need to do your research. Consult with a financial advisor so you can make an informed decision.

Income protection insurance is important, but so is implementing solutions that will minimise work health and safety risks. WorkBuddy is a job management software loaded with job safety and compliance management features that make it easy to create and enforce safety protocols. Book a free demo today to see how WorkBuddy benefits tradies.

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