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Income protection insurance

Income protection protects your most valuable asset, the ability to earn an income. How would you meet your living expenses such as mortgage payments and school fees if you could not work due to sickness or accident?

The inability to earn your regular income due to an injury or sickness can be financially devastating for you and your family. Income insurance can provide you with a regular income stream if you become totally disabled or are recovering from an injury or sickness and provides 24 hour protection.

In the event of a serious illness or injury, the insurer would pay up to 75% of your salary until you have recovered sufficiently to work again, or up until the maximum benefit period as stated in the policy which is normally 2 or 5 years or up to age 65. The benefit is paid after a waiting period which dictates how long you have to wait before you are eligible to receive payment following a claim. Typical waiting periods are 14, 30, 60, 90 days or 2 years with the latter being applicable if a person has a limited form of salary continuance within their superannuation fund. Significantly lower premiums can be achieved by accepting a longer waiting period.

If you are self employed you can also get cover up to 75% of the income generated by the business due to your personal exertion less your share of expenses.

Unlike other forms of personal risk insurance, income protection premiums are tax deductible for most taxpayers. The after tax cost of the cover can therefore be significantly less than the cost of the premium.
 

Premiums for income protection policies are generally based on the following:

  • Age (premiums may increase or cover decrease as you get older);
  • Gender;
  • Health and pre-existing conditions;
  • Whether or not you smoke;
  • Occupation (for example, a manual labourer pays different premiums to an office worker); and
  • The time you choose to wait before receiving payment. 


Considerations

  • Claims escalation – monthly benefit moves in line with inflation.
  • Stepped v Level premiums - level premium policies are usually substantially more expensive in the early years because you are locking in a flat or level premium into the future however they become substantially cheaper in the longer run.
  • Indemnity v Agreed value cover – with an Indemnity policy the monthly sum insured is not a guaranteed amount - it is the maximum benefit payable. The actual benefit is calculated as a percentage of the income earned in the period prior to making a claim and evidence of income is not required until a claim is made. These policies are best suited to salaried employees who expect their incomes to be constant or rising in the future.  With agreed value your income is proven from the outset of the policy and the agreed monthly benefit is paid upon claim regardless upon whether you have had a change of occupation or salary.


These are just some of the policy benefits which need to be taken into account when deciding on a suitable policy. We can help you decide which policy benefits are suitable to you and compare policies to arrive at a suitable solution taking into account the competitiveness of the premium as well as the benefits of the policy.


If you would like to know more about income protection or would like to compare your current policy, contact our office to speak to one of our insurance specialists.