When we meet with clients who are seeking financial planning advice, one of the areas we look at is whether they have any income protection insurance. If you’re working and relying on your income to fund your future goals, you need to ensure your income will continue even if you’re unable to work due to sickness or injury.
Did you know:
- On average, only 25% of debilitating injuries occur at work or are work related.
- In 2007/08 there were approximately 700,000 serious injuries in Australia. Of these, only 216,000 qualified for workers compensation.
- Two-thirds of workers can expect to be off work for more than three months during their working life due to illness or injury.
- A survey conducted by CommInsure in 2005 revealed that over two-thirds of those asked either had no income protection insurance cover at all or had a limited amount of cover.
Those statistics are a great worry. If you can’t work and have no way of replacing your lost income it puts a greater degree of pressure on you to return to work sooner to pay the bills.
We all know of people who have had extended periods away from work due to sickness or accident. You’d know the physical battle they endured, but what about the financial battle?
Who needs income protection?
- People who are working and saving for their future
- People who don’t have much accrued leave
- People who don’t have an income producing partner to support them if they were unable to work due to sickness or injury
- People who rely on their income to cover their living costs.
In fact, most people who are working probably need to have some cover.
A common cause of confusion is to think you are covered by worker’s compensation insurance. This, however, only covers accidents at or during work or illness directly attributed to work.
If you are not aware of the cover available, read on!
Income protection insurance pays an income to you if you are unable to work due to an accident or illness. The income is usually 75% of your pre-disablement income and is payable after a “waiting period”. You choose the waiting period to suit your needs – for instance, if you had lots of unused leave you could choose a longer period.
Income protection is particularly valuable for self-employed people, casual workers or anyone else who relies on their income but has no sick leave. You will be required to provide evidence of your usual income when taking out a policy.
The income will be paid until you recover and return to work or for a “benefit period” – this can be as short as one year or up to age 65. Some policies pay a rehabilitation benefit to help ease you back to work.
Income protection insurance premiums are tax deductible, however, the income payments are taxable.
Premiums are generally based on your age, gender, occupation and previous medical conditions but you can save money by choosing a longer waiting period and a shorter benefit period. However, there is no point in having insurance that doesn’t pay out when you need it.
If you would like to find out more about income protection, or if you’re not sure if your existing cover is adequate, please contact us on 08 8364 006 and we’ll arrange a time to meet with you.
Impact Financial Coaching is a financial planning business in Adelaide, South Australia.
Important information
Article sourced from Words Unlimited.
This article contains financial product advice of a general nature only and is not intended to constitute personal advice. It does not take into account your particular investment objectives, financial situation or needs. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in the publication.
Financial Wisdom Advisers are Authorised Representatives of Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
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