As retirement approaches, many Australians begin to reassess their financial priorities. You may have paid off the mortgage or grown your super. That said, one question often lingers in the back of most Australians’ minds: Do I still need income protection insurance?
The answer isn’t a simple yes or no. This decision depends on your financial position and lifestyle.
Moreover, your retirement timeline also plays a huge role in deciding if this insurance is good for you or if you need to start looking for other options like Total Permanent Disability or Trauma insurance.
In this article, we will cover the key considerations to help you decide whether income protection is still relevant in your later working years.
What is Income Protection?
Income protection insurance is a safety net that provides a regular income for the insured when they are unable to work due to injury or illness. It provides coverage of up to 70% of your pre-tax earnings to help you sustain ongoing expenses when you are unable to work due to illness or injury. Some insurance providers may even offer up to 85% coverage.
This protection is especially valuable for those without significant savings or other safety nets. But does its value diminish as you approach the finish line of your career?
Why Income Protection Can Still Be Relevant Near Retirement
You might assume income protection becomes unnecessary the closer you get to retirement because they do not cover any benefits after you reach a certain age or retire. That said, there are several scenarios which challenge that idea.
You Are Still Earning an Income
Your employment status as either full-time or part-time does not eliminate the potential loss of income because of sickness or injury. A lack of regular income will force you to withdraw money from your retirement savings before your intended schedule, which shortens the amount of available funds.
So, it might be a good idea to keep the insurance for a safer and financially stable future.
Your Super May Not Be Enough (Yet)
Australians consistently make superannuation contributions up to retirement time. If you have a good super for your retirement, you are all good and can consider revoking the policy. However, if your superannuation is still low, then it’s better to keep the insurance until your retirement.
Your retirement savings will experience substantial damage if you stop making contributions because of illness or injury, particularly when you were planning to contribute more during your last years of employment.
You Have Ongoing Financial Commitments
Your career does not prevent you from needing to handle financial responsibilities, such as raising children in later years, paying off existing loans, or supporting elderly parents. The safety net provided by income protection allows you to sustain your financial condition instead of making painful concessions.
When It Might Be Time to Review or Cancel Income Protection
There are cases where income protection may no longer be necessary for you. Here are some situations in which you should consider cancelling this policy and diverting the money somewhere else.
You Have Strong Financial Reserves to Support You
First and foremost, if you have accumulated sufficient emergency savings or have a partner’s income to rely on, you can consider revoking the income protection policy. Instead, look for other insurance policies like Total Permanent Disability or Accidental Death insurance, which can be valuable for you and your family.
You’re Transitioning to Full Retirement
Once you officially retire and no longer earn a regular income from work, you won’t be eligible to claim income protection benefits. At this point, cancelling the policy makes sense. This can help you avoid wasting your money for absolutely no return.
When Premiums Outweigh the Benefits
In most cases, premiums for income protection insurance increase steadily as a person ages. So, contact your broker for an evaluation of your coverage’s suitability when premiums are elevated. Your risk tolerance may also decline over time, especially as your remaining years in the workforce decrease. There’s absolutely no point in having income protection insurance when the premium outweighs the benefits.
Consider a Policy Review with Your Adviser
Making the decision to keep the policy or not might seem daunting when you do it yourself. However, you don’t have to do it alone. Instead, take help from an adviser and assess the following things before you make the final decision.
- Your current income and expenses.
- Your expected retirement age.
- Existing savings and superannuation.
- Any changes in health, occupation, or lifestyle.
Just because you’re nearing retirement doesn’t automatically mean income protection is no longer useful. If you’re still working and there’s a financial impact of losing your income, income protection can still be one of the best things you put your money into during your final working years.
The key is to weigh the cost of premiums against the potential benefit and tailor your coverage to your evolving needs.
If you’re unsure about your current coverage or want to explore more tailored options, consult with trusted insurance providers to learn more about solutions that match your stage of life.