In Australia, individuals often seek financial security through various insurance products, particularly in the context of job loss or income disruption. Two popular options are Living Redundancy Cover and Income Protection Insurance. While both serve to provide financial assistance during challenging times, they have distinct features, benefits, and limitations. This article explores the key differences between these two types of coverage.
1. Definition and Purpose
Living Redundancy Cover: Living Redundancy Cover also called as Repayment Relief Benefit. This type of insurance is designed to provide a lump-sum payment if you are made redundant from your job. It aims to cushion the financial impact of losing your employment due to circumstances beyond your control, such as company downsizing or restructuring.
Income Protection Insurance: This insurance provides a regular income replacement if you are unable to work due to illness, injury, or disability. It is meant to support your ongoing financial obligations, such as mortgage repayments and living expenses, during your recovery period.
2. Coverage Triggers
Living Redundancy Cover: The coverage is triggered specifically by redundancy, meaning that you must be formally laid off from your job. It does not cover job loss due to resignation, termination for cause, or voluntary redundancy.
Income Protection Insurance: This insurance can be activated by a wide range of circumstances, including temporary or permanent incapacity due to health issues. It is not limited to job loss and can provide benefits even if you are still employed but unable to work.
3. Benefit Structure
Living Redundancy Cover: This cover provides a monthly benefit for up to 90 days to help cover minimum monthly home loan repayments if you’ve been Involuntarily Unemployed for more than 60 consecutive days.
Income Protection Insurance: This policy generally pays out a percentage of your pre-disability income (up tp 70%) as a monthly benefit. Payments continue until you return to work, reach the end of the benefit period, or pass away, depending on the policy terms.
4. Duration of Benefits
Living Redundancy Cover: The benefits are usually up to 3 months monthly payment, which means you will only receive up to 90 days to help cover minimum monthly home loan repayments if you’ve been Involuntarily Unemployed for more than 60 consecutive days.
Income Protection Insurance: Benefits can last for a specified period (e.g., 1, 2, or 5 years) or until you reach retirement age, depending on the policy. This ongoing support can be crucial for those who face long-term health issues.
5. Cost of Premiums
Living Redundancy Cover: Premiums for redundancy cover can be lower than those for income protection, as the risk is limited to specific redundancy events.
Income Protection Insurance: Premiums tend to be higher due to the broader coverage and the potential for longer-term payouts. Factors influencing the cost include age, occupation, health status, and the level of coverage chosen.
Who Can Apply for This Policy
Living Redundancy Cover: Applicants must have been employed for at least 180 consecutive days (Qualifying Period), after which you became Involuntarily Unemployed. You can insure your Minimum Monthly Home Loan Repayments up to a maximum of $7,500.
Income Protection Insurance: Individuals who are employed and wish to protect their income in case of illness or injury can apply for this insurance. Eligibility may depend on factors such as employment status, income level, and health assessments.
Conclusion
When considering financial protection against job loss or income disruption, it is essential to understand the differences between Living Redundancy Cover and Income Protection Insurance. Living Redundancy Cover is focused on providing a financial cushion in the event of redundancy, while Income Protection Insurance offers broader coverage for various circumstances that may prevent you from working. Evaluating your personal circumstances, financial obligations, and risk factors can help you make an informed decision about which type of insurance may be right for you.
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Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Insurance (aka: Hippo Wealth), with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at http://www.hippoinsurance.com.au
