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How much income protection cover do you need?

Income protection cover can be the safety net that keeps your household afloat financially, even if an unexpected health event means you can’t work and earn as you normally do.

But how do you work out how much cover you might need?

Here are five things to think about.

Your regular expenses 

Checking your current expenses may be a good starting point to work out what level of income protection cover might be appropriate.

If you were not able to work, what are the bills that would keep coming?

They might be things like your home loan payments or rent, your utility bills, your grocery shop, or the cost of your children’s schooling or other activities.  

You could then think about which expenses might be relatively easy to reduce or eliminate, if you had to, and which you would want - or need - to remain the same.

This may give you a basic idea of how much income you need to be able to replace. 

Your existing assets and other safety nets

Then, you can work out how much you might be able to cover yourself. 

If you had investment assets you could call on, for example, that might reduce the amount of insurance protection you would need.

Perhaps you have enough money in savings that you could cope without income for a few months before you needed insurance to help.

Your safety nets could even be non-financial – family members who might assist if you were not able to earn money. 

All of these factors may influence the amount of cover you require. 

Your goals and needs

Everyone’s circumstances and aspirations are different.

As part of your assessment, you might also like to think about your financial goals and the level of financial security that your family needs.

Someone who is working hard to save the deposit for a house, for example, may need more income protection cover to keep them on track and avoid wiping out those savings, than someone who has a mortgage-free home already.  

You might be the type of person who is relatively comfortable with adjusting your lifestyle to fit a lower income – or you might prefer to have more leeway in your budget. These sorts of questions will also be a guide.

Your health and lifestyle 

When you’re assessing your insurance needs, you also need to take into consideration your current health and lifestyle. If you’re currently fit and healthy, it may be an optimum time to consider what protection you could put in place to help if that were to change.

If you have already developed health conditions, this may affect your application for new insurance cover and could affect the extent of cover you take out. We can help you navigate these questions.  

Premiums may also be higher due to some lifestyle factors such as smoking, your occupation, or even any hazardous hobbies you partake in. Again, we can discuss how to approach this. 

Your current cover

It is usually useful to think about how a particular type of protection fits with the other insurance policies you hold, to avoid over- or under-insurance.  

We can help you look at your current insurances and work out where the gaps might be, or where you might have cover that you could call on.  

We are here to help 

As advisers, we can help you to look at the income protection insurance options available to you and determine what might be an appropriate fit for your needs and circumstances. One size doesn’t fit all and expert financial advice can make a big difference.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.