Insurances – Income Protection
Sometimes we all take things for granted and we don’t realise what we have until it’s gone. The ability to earn an income is probably one of our most valuable assets. What if this was taken away from us? For most of us, not being able to earn an income will mean not being able to pay our bills and provide for the needs of our families. Our lifestyle depends on it.
Protect your most important asset – your income
If you can’t work for an extended period of time due to injury, accident or because you’re sick, how long can you go without your usual income to meet day to day expenses? How will you pay your bills and/or mortgage repayments? Most of us would consider car insurance important when we drive a car or buy home and content insurance when we live in a house. But what about insuring our income that provides for our lives? We often forget about the importance of protecting our ability to earn the income that provides for our families and our daily living.
More than 60% of Australians will be disabled for more than one month during their working life and more than 25% will be disabled for more than 3 months[i]. Australian research indicates 60% of families with dependants will run out of money within a year if the income earner dies[ii].
Some people may assume that they are covered under Workers Compensation and not realise the limitations. Over 2.6 million Australians aged under 65 are living with a physical disability[iii], with many including conditions like cancer, stroke, heart disease and depression that in most cases will not be covered by Workers Compensation.
Australian leading Insurance provider TAL paid over $275 million in Income Protection claims to Australians aged 17-69 in 2014[iv] as shown in table below.
Table: TAL Insurance Claim figures 2014[iv]
Income Protection Insurance
Income Protection allows you to continue to keep the household running for a nominated period of time while you are unable to work due to illness or injury that has left you totally or partially disabled. It gives you confidence and takes the financial pressure off so that you can recover quicker.
Being covered by income protection means you could receive up to 75% of your pre-tax income to help you and your family meet the cost of living and take the financial burden away while you recover. They also provide coverage for up to 10% of super guarantee contributions as an option to ensure your superannuation continues to grow.
Insurance providers these days offer a wide variety of choice and options in insurance covers to give flexibility and competitive rates to clients. What you should also consider is insurance cover that will give you the best possible outcome at claim time.
Some points to consider and ask your adviser about when taking up Income Protection:
- Premium Structure – Insurance providers generally gives you a choice in premium payment structure. This allows you to select if your premium is to increase each year in line with your age (stepped) or you pay a constant premium until a set age (level), eg. 65 or 70. It may also be possible to have a combination of both options.
- Waiting Periods – Covers will vary with their waiting periods, you may be able to choose how long you will need to wait before you receive benefit payment. Talk to your adviser about the length of waiting periods you select as this has an effect on the premium amount that you pay.
- Sum Insured – It’s important to know what type of cover gives you the best claim for your financial situation. Consider if your cover should be based on an ‘Agreed Value’, meaning the cover will pay the predetermined sum insured no matter what your income is at the time of claim, or Indemnity type cover which means it will pay whatever is the lesser amount between your sum insured and your income at the time of claim.
- Part time work penalties – some cover may allow you to work for an agreed set amount of hours per week (eg. 8 hours a week) and still be entitled to receive full benefit.
- Requirements during waiting periods – you should check if the cover has any condition that requires you to be ‘totally disabled’ during waiting periods and if you are allowed to work while you are waiting.
- Retirement Protection – On top of your Income protection benefit, you may be able to get extra cover and get up to 10% superannuation contribution made on your behalf while you recover from illness or injury.
- Buying your insurance in super – you may be able to benefit from cost and tax advantages when you buy your Income Protection Cover through your superfund. Depending on your cover options, it may be possible to have premiums deducted from your super to free up paying from your savings or cash-flow. Talk to your financial adviser to see if this option is possible and beneficial to you.
There are many other options available to you when you select your income protection cover and rules and restrictions may apply to each option. Therefore before committing to buy any insurance cover, it is important to discuss all options available to you with your financial adviser and find the insurance cover that protects you adequately and best suited to your situation. Give us a call to discuss any Insurance questions you have or simply to find out if Income protection is an option suited for you.
Can you afford to not have income protection cover?
Disclaimer: This newsletter contains general information only. The information contained in this communication is not designed to be a substitute for professional advice as such a brief guide cannot consider and cover all individual needs, objectives, circumstances and conditions applying to the law as it relates to these items mentioned in this article. No responsibility can be accepted for errors, omissions or possible misleading statements or for any decisions or actions taken as a result of any material in this communication. Appropriate expert advice should always be considered from a professional financial adviser prior to making any financial decisions.[i] Australian Disability Table IAD89-93 Class [ii] IFSA Research – A Nation Exposed. Conducted for IFSA by Rice Walker Actuaries and TNS Australia, 2005 [iii] http://www.abs.gov.au/ausstats/abs@.nsf/mf/4825.0.55.001/ accessed on 30 August 2012. [iv] The figures shown represent actual claims paid by TAL from 1 January 2014 to 31 December 2014 across all TAL products. Graph and table from TAL Insurance Guide – Income Protection.
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