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Why income protection is no substitute for trauma insurance

trauma insurance income protection insurance working health employment income illness

Your income is your most important asset, yet it is often overlooked.

Many of us don’t prepare for the impact that illness or disability can have on our ability to earn an income for a period of time.

Income protection and trauma insurances are two products designed to protect us against such financial losses.

Here are a few important facts to help you understand them better:

• Income protection insurance commonly insures 75% of your gross income in the event of prolonged illness or disability that prevents you from working.

• In comparison, trauma insurance is an immediate, one-off lump sum payment to cover financial needs and is only paid if you meet one of the specified medical conditions in the policy.

• Due to the risks of certain occupations and barriers to re-entering the workforce for some jobs, income protection insurance premiums vary by occupations, with professionals paying the least and blue-collar occupations paying the most.

• It’s important to note that income protection premiums can be more than twice the cost of trauma policies, even after factoring in the tax deduction that comes with income protection insurance.

• Knowing that income protection can be quite expensive, you could consider trauma insurance as an affordable option. Trauma insurance will not pay out in as many circumstances as income protection insurance but it does offer some peace of mind with cover for upfront expenses.

Income protection and trauma have some overlap in what is covered but are not substitutes for each other.

If anything, trauma insurance is a reasonable addition to income protection cover.

Ultimately, affordability, occupation and personal circumstances will determine what levels and type of cover are relevant to you, which is something to speak to a financial adviser about.

Average premium males

Income protection* $87pm or $1044pa
Trauma $ To come

Average premium females

Income protection* $132pm or $1584pa
Trauma $ To come

Source: Canstar. *Based on stepped monthly premiums covering 75% of $70,000 annual salary for a 30-year-old male and female for all white-collar occupations considered.

Written by Josh Callaghan

Josh Callaghan

Josh Callaghan is general manager of wealth with Canstar.

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