Preparing for the worst

Another 700 job losses were announced in an Australian company today with unemployment statists as gloomy as ever.

When people take on a loan, make a purhcase on their credit card, or even spend their savings on a well deserved holiday, they never suspect to lose their job, fall ill or sustain an injury the very next day.

A financial back-up plan is an essential part of life, yet so few Aussies are covered in their time of need.

Financial experts agree everyone should have the equivelant of three month's worth of wages squirrelled away for a rainy day. But by the time people have repaid their debts, put money in a savings account and bought everyday expenses, it could take years to accumulate that much money.

If you can't find the time or the means to set aside a back-up fund, you should seriously consider income protection insurance.

Income protection insurance will cover up to 75% or more of your income should anything hinder your ability to work. Income protection insurance can generally cost more than life insurance, but premiums for income protection insurance are tax deductible.

Each different company will offer a different product so it is important to shop around for a policy that is right for you.

When you are looking at different providers, check the definitions of disability, to ensure you are covered for circumstances that are more likely to happen in your work place. For example Tradies will have different risks in their workplace than an administration clerk. Also check the definition of income, to ensure you will receive an amount enough to cover your living expenses. Different policies also cover different additional benefits, such as hospital benefits and nursing care.

Always read the Product Disclosure Document to know exactly what will be included or excluded from your policy.

Income prtection insurance may also have an agreed value, a benefit period and a waiting period which vary across different providers.

It might seem like just another expense at the time, but it is better to pay a small weekly cost and be covered when you can't work than to try to live for possibly weeks on end without an income.

Whether it is purchasing an insurance policy or saving for an emergency fund, you should take precautions to ensure you have a back-up plan.