Why your income needs protection

AUSTRALIA’S pay gap between men’s and women’s wages is well documented, but there is also a wide gap for income protection.

New Finder.com.au research found women are more financially vulnerable than men but are much less likely to take out income protection insurance — at 31 per cent compared with 69 per cent.

Finder’s analysis of 7000 income protection quotes also found women seek a lower level of cover, $60,400 versus $76,200, a 26 per cent gap much wider than the 15 per cent wage gap.

“The main breadwinner is more likely to take out protection, which historically has fallen to men,” Finder.com.au spokeswoman Bessie Hassan said.

“Given women often out-earn their partners these days it can be just as important for both.”

The insurance typically replaces 75 per cent of a person’s income if they are unable to work because of illness or injury.

Canstar figures show average monthly premiums for a 27-yearold earning $50,000 range from $44 to $90, depending on gender and occupation. For a 52-year-old earning $100,000, they range from $201 to $527. Smokers pay much higher premiums.

JBS Financial Strategists CEO Jenny Brown said most people didn’t think twice about insuring homes or cars but this diligence didn’t extend to income, which could easily be worth more than $1 million over their working life.

“We all feel infallible until something happens to us, a family member or close friend,” she said. “We often get referrals when something has triggered that response.”

Income protection insurance is usually 20 to 50 per cent more expensive for women.

“Generally they have made more claims — women tend to go to the doctors to get things checked out,” Ms Brown said.

The insurance can be purchased inside or outside of superannuation. While buying it inside super puts less strain on a household budget, it’s less flexible and eats into nest eggs.

Ms Brown said premiums were tax-deductible, making it more attractive to buy outside of super.

“Unless someone absolutely could not afford it, I prefer income protection owned outside of super,” she said. “The chances of claiming are a lot higher than people think.”

Ms Hassan said women could better protect their income by reviewing their insurance needs and building emergency savings of at least three months’ salary.