Income protection for workers with inconsistent salary

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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, updated on November 25th, 2021       

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There are multiple reasons for people with variable and inconsistent income to have income protection cover. This applies to when you are sick and have no income or to cover utilities while not earning. This article explains how you too can make use of such benefits.

According to the Australian Bureau of Statistics, in May 2016 there were 39.7% part-time workers, 22.6% being casual employees. If you fall into one of these groups, you still have bills to pay when ill or injured. Therefore, it’s important to have income protection: you can obtain this even if your salary is not fixed.

The essence of income-protection insurance

For those self-employed or involved in contract work, in every position in which your salary is fluctuating, injury or illness means no income, placing your livelihood in jeopardy. Income protection insurance ensures a stable income when you are unable to work. Such policies will cost more than normal policies, however, the benefits are guaranteed.

One of three income protection policies could be suitable for people with unstable incomes. These policies pay out either agreed or indemnity value.

  • A basic income protection provides a 75% cover on earnings during injury or illness. A base rate is paid out calculated on your salary. This will cover the more common health conditions.
  • An accident-only policy, similar to basic income protection, offers cover up to 75% of earnings. This is only in the event of an accident, illness not being covered.
  • If a basic income protection cannot offer you enough, a premium income protection may be a better option. This cover offers extras such as rehabilitation benefits, death cover, and loan cover.

Alternatives to income protection

Besides the income protection policies there are also some life insurance policies that may be beneficial. These are similar to trauma insurance, in which a lump sum is paid out in the event of a condition listed on the policy. Another option would be TPD insurance. This is a disability cover that pays out a lump sum if you are hurt or disabled. Lastly, there is life insurance, which also pays out a lump sum on death or when terminally ill. After death, the money will go to your named beneficiary.

Major elements that affect the cost of the premiums

Factors that will result in higher premiums is your decision to choose agreed value rather than indemnity value. Besides the amount to be paid out, there is also the waiting period ranging from 30 to 90 days. The longer the waiting period before payout, the lower the premiums. In addition, you can have the benefit period range from 6 months to 5 years, while you recover. However, there are longer period options, accruing higher premiums, and most stopping when you reach the age of 70. Other factors include, type of work, age, smoker, non-smoker, if you play sport and pre-existing conditions.