We take some of the best things in life for granted. The ability to earn an income can be one of them. It’s just work, right? But it’s probably your most valuable asset. So how would you feel if it was lost or taken away?
Income Protection Insurance is a monthly benefit which is paid to you if you are unable to work due to illness or injury, Income Protection insurance will pay you an ongoing income up to 75% of your Pre-Disability Income
You’ll receive an ongoing monthly payment that will:
- Help you to cover your living expenses and debt repayments
- Help to protect you from having to exhaust your savings, sell assets or rely on Centrelink for assistance
People are used to insuring their houses and their cars. Income Protection, however, is a different matter. While most people would never consider driving a car without motor insurance, less than a third of the population insure their most important asset – their ability to earn an income. This leaves a significant proportion of the population facing financial hardship if they were to have an accident, become sick or die.
In the event of a successful claim, benefit payments do not start immediately as they are paid in arrears. A waiting period will apply during which no benefit is payable. You will need to choose a waiting period when you choose your cover. It’s important to take into account any sick leave and related benefits that would be paid by your employer, as these may allow you to endure a longer waiting period. The longer the waiting period, the cheaper your premium.
A benefit period is how long you will receive your benefit for if you are unable to return to work. You will need to choose your benefit period when you choose your cover. The shorter the benefit period, the lower the premium.
You can obtain your Income Protection insurance under an ‘Agreed Value’ or ‘Indemnity’ policy. Under an Agreed Value policy, you will receive the agreed monthly benefit at the time of a successful claim, regardless of the amount you are earning at that time. You’ll need to provide proof of income at the time you apply for cover. This is a good option if your income fluctuates over time as your payout is only dependant on proof of an income at time of application, not the amount you are earning at the time of claim.
Under an Indemnity policy, the amount you receive at the time of a successful claim will be assessed on your earnings prior to the disability. You will need to provide proof of income at time of claim. Your payment will be the lesser of your income or the sum insured. This is a good option if you have a stable income and can easily substantiate your income at the time of claim, your occupation does not allow an Agreed Value policy, or you have only recently established your business and do not have two years of financial evidence available. The premium for an Indemnity policy is less expensive than an Agreed Value.
Insurance policies can be paid from any direct debit or credit card accounts and in some cases by Cheque. If affordability is an issue, your policy may be funded via a partial rollover from most superannuation funds. This will eliminate any out of pocket expenses
Stepped premiums are generally cheaper to begin with however will increase each year – These increases are due to CPI or 5% whichever is the greater and in the case of stepped a risk loading is applied on every policy anniversary normally on your birthday, or on the policy anniversary date. Therefore, the older you get the higher this risk loading becomes. So stepped premiums increase at an ever increasing percentage as you age making it unaffordable when you need it the most.
Stepped premiums are great for those who require an insurance policy for only a short time
Level premiums allow you to ‘lock-in’ your premium – If you select level premiums, the amount you pay will be based on the Life Insured’s age at the Plan start date and premiums will remain the same other than CPI increases on each anniversary date of the policy renewal. Your premium normally only increase if your Benefit Amount increases or policy modification.
This type of premium initially will be more expensive than stepped premium but can often result in greater savings over the long term. Most importantly, level premiums can ensure that your insurance cover remains affordable and sustainable when you need cover the most.
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