Income protection insurance replaces the income lost through your inability to work due to illness or injury. It is an important consideration for anyone who relies solely on an income.
Each income protection policy is different but most income protection insurance will cover up to 75% of your income when you are unable to work. You receive the insurance monies after you wait a defined period (wait period) and are paid for a defined period of time (benefit period). There are a few important considerations that can affect the cost of the insurance so here are our tips on where to save money:
Any occupation verses own occupation.
This is important. You should always use your own occupation. This means that your inability to work is in the job you are currently carrying out. Any occupation means you do not receive any funds if you’re capable of doing any other occupation.
Wait Period
This is an area where you can save money. It is worth determining how long you can survive without an income by considering your individual situation and entitlements such as your sick leave entitlement with your employer. In essence the longer the wait period, the cheaper the insurance and the difference can be substantial.
Benefit Period
This is not the area to save money. While a shorter benefit period will reduce premiums we recommend setting your benefit period to age 65. It doesn’t cost that much extra to extend the period to age 65 and you are then covered for all the nasty long term events. You may have some income protection insurance inside your super fund which normally will only have a 2 year benefit period.
It is also worth noting that Income Protection Insurance is tax deductible because in event of a claim the proceeds are taxable.
If you would like further information or have any queries regarding the above please do not hesitate to contact the office, we can put you in touch with a financial planner who can assist with your insurance needs.
Author: Adrian Wardlaw
Email: adrian@faj.com.au
