Income protection, redundancy cover and mortgage protection: What do they mean to me?
Types of financial protection
Redundancy cover
Some insurance companies allow you to purchase or add redundancy cover to existing life insurance policies for increased financial protection if you involuntarily lose your job, which is not available through Compare the Market
If you receive an involuntary redundancy at work, redundancy cover can help with expenses until you find another job, as well as education and training to help you get back into the workforce. However, you need to meet certain criteria, including:
- Not being made redundant because of sickness or injury (which is covered by regular income protection policies).
- Not having any knowledge of upcoming layoffs when you purchased redundancy cover.
- You did not resign, retire, choose a voluntary redundancy or were let go during a probationary period.
If you applied for your home loan through the bank, the bank may include a redundancy policy as a cover option on your home loan so you can continue paying your mortgage if you’re made redundant.
Mortgage protection insurance
Mortgage protection insurance, also known as home loan insurance or consumer credit insurance, covers your mortgage repayments in the event of your passing, the diagnosis of a critical illness or if you become totally and permanently disabled.
It can cover repayments for both residential and commercial properties and is also available for owner-occupied and investment property loans.
Income protection
Whether you’re self-employed or work for a company, income protection insurance typically pays out up to 70% of your monthly income for a set period in monthly payments if you can’t work due to a sickness or injury. This means that you could continue making contributions towards your mortgage, car loan repayments, weekly groceries and your kids’ school fees if you’re unable to earn an income.
Can I choose between indemnity value and agreed value insurance policies?
When signing up for a new income protection policy in the past, you had a choice of whether your payout was based on an indemnity value or agreed value. Now, all new income protection policies are indemnity value policies.
Indemnity value policies cover either 70% of your income or the full benefit amount (the total amount that your income protection insurance is worth) – whichever is lower.
The full amount is a capped value per month. You may be able to claim a payout between the minimum and maximum benefit amount payable by your policy, as long as it’s less than 70% of your income before the incident occurred. It typically factors your regular income as an average for a set period before claiming on an incident.
For agreed value policies, your insurer agreed to cover a fixed amount of your income. This amount remained the same even if there was a change in your income (such as receiving a promotion).
Meet our life insurance expert, Steven Spicer
As the Executive General Manager of Health, Life and Energy and our expert in income protection insurance, Steven Spicer knows just how valuable it can be to have a policy that could support you and your family through a difficult time. Steven is passionate about making income protection more accessible to everyday Australians by helping them understand and compare their options.
Steven has 20 years of experience as a people-first business leader, with a focus on creating services that put customers first.