If your income disappeared tomorrow, and you could never work again, how would you cope financially?

Australian’s have a 1 in 3¹ chance of being out of work for more than 3 months due to accident of sickness. Income Protection Insurance provides the necessary protection agains the financial hardship that would follow 

What does Income Protection Insurance provide?

The primary benefit of Income Protection is a monthly payment of up to 75% of your gross income.

Some optional features also available in most policies include:

• Inflation protection of the monthly benefit
• An additional Super contribution
• A lump sum payment for specific conditions regardless of time off work
• An accelerated payment in the event of an accident

Income Protection Decisions

When applying for an Income Protection policy you will need to decide the following:

Waiting Period

The waiting period is the amount of time you must wait before receiving your first benefit payment. Waiting periods usually vary between 14 days and 2 years. Longer waiting periods reduce the cost of the insurance, because the chance of a claim is reduced.

Benefit Period

The benefit period is the maximum amount of time the insurer will continue to pay a monthly benefit. Benefit periods usually range between 2 years and up to age 70. Longer benefit periods increase the cost of the insurance because the insurer is taking on more risk.

Agreed or Indemnity Benefit

As the name suggests, an Agreed Benefit is agreed upon at the time of application. The insurance company will exampine your current income and lock in the benefit. In the event of a claim you will not be requried to prove income.

An Indemnity Benefit, on the other hand, is finalised at time of claim. At claim time the insurance company will request evidence of income for the preivous 12 months. In the event your income has dropped, the insurer will only pay 75% of the recent income. Because the insurer is taking on less risk, an Indemnity Benfit is cheaper than an Agreed Benefit policy.

Taxation of Income Protection

As far as the ATO is concerned, Income Protection benefits are another form of income and are taxed accordingly. This is why Income Protection poicies are based on your gross income.

The good news is that Income Protection premiums are tax deductible. Therefore, if you have Income Protection Insurance be sure your accountant is made aware.

Sources

1. Institute of Actuaries of Australia 2000. Interim Report of the Disability Committee. IA Aust; Sydney.

Stephen Handley

My name is Stephen Handley and my goal is to help as many Australians as possible protect against financial loss. Leveraging my extensive experience in web technologies and financial services I have made it easier than ever before for you to research, compare products and obtain life insurance cover directly over the Internet. When you obtain a policy through my company, you have the confidence of knowing that, in the unfortunate event of a claim, you will have someone in your corner, managing the process and representing your interests.