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Income Protection

incomeprotection

Your ability to earn an income is your most valuable asset.

Your lifestyle depends on it. If an accident or illness prevented you from
working, how would you cope financially?

Most people wouldn’t drive without car insurance, or live in their house without home and contents insurance. Yet most Australians don’t consider protecting their ability to earn an income.

Do You Need Income Protection?

What Are the Risks

Our apologies in advance for the stats below. Things we would prefer not to think about. A reality check can sometimes help us prioritise our decision making.

  • 2.6 million Australians aged under 65 are living with a physical disabilityi.
  • Australians have a one in three chance of being diagnosed with cancer before age 75ii.
  • 690,000 Australians were injured at work between 2005 – 2006, with 43% not receiving any financial assistanceiii.
  • More than 60% of Australians will be disabled for more than one month during their working lifeiv.
  • More than 25% of Australians will be disabled for more than three months during their working lifev.

The reality

Without an income, mounting debts can cause additional stress. How long could you afford to cover your expenses, without completely draining any savings safety net?

A health setback doesn’t have to affect your financial well being. Income protection will compensate you for any time taken off work. Still, many Australians don’t take out insurance protection because of some common misconceptions …

“I’ll be covered under Workers Compensation”

Workers Compensation is limited. It only applies if you are injured during working hours or for illness directly resulting from your employment. It also has limited periods of cover unlike an age 65 cover possible through a full income protection policy.

If you’re self-employed, you may not even have Workers Compensation this cover.

“I can’t afford it”

Income Protection premiums are usually tax deductible and can cost less than $4 per day vi. The question should be ‘can I afford NOT to have income protection?’ – Your income fuels your life

What is Income Protection Cover?

Income Protection Cover pays up to 70% of your income if you are ill or injured** (it can extend up to 85% with super contributions included) . This money can help you and your family manage your living expenses while you recover.

What are the cover features?

Here are things to consider with Income Protection Cover *:

  • Tax deductible premiums: The benefits that you receive are taxable however your premiums are generally tax deductible, allowing cover to be more affordable.
  • Partial payments: If you’re able to return to work part-time, you may receive a partial monthly payment to support your transition back to full time employment.
  • Additional benefits: A range of additional benefits let you tailor the cover to suit your needs
  • If you choose a level of cover than is more than your financials can justify, you will be paid the lessor amount according to your actual earnings. If you are self-employed BEWARE – cash in hand jobs, that are not declared, do not count towards proving your income come claim time. It’s important to select as close as possible to the right amount of cover so that you are not unnecessarily paying premiums that are too high.
    * Please consult the relevant PDS found in the footer of this page for more detailed information

Here are just some of the options you can expect with Income Protection Cover:

  • A choice of waiting periods: Choose how long you will wait, in the event of a claim, before you receive benefit payments – 2, 4, 8, 13, 26, 52 or 104 weeks.
  • Benefit periods: The benefit payment period can be for one, two or five years or to Age 65.
  • Extra options: see relevant PDS.
  • Inside or outside super: You may be able to hold your Income Protection Cover inside super and pay premiums using pre-tax dollars.
  • There are often restrictions however, so it’s important you talk to your financial adviser.
  • Choice of premium options: ‘Stepped’ premiums increase each year in line with your age, while ‘Level’ premiums remain constant until age 65 (subject to insurer terms and conditions and note that increases in base level of insurer’s premium will impact level premiums).

There are many other benefits depending whether you choose a Standard or Comprehensive Policy.

What do the payments protect?

A monthly benefit could help you stay on top of debts, pay for medical bills and generally give you the means to maintain a reasonable standard of living if you’re not able to earn an income.

  • Mortgage repayments – Whatever happens, there will be funds available to safeguard the family home.
  • Day-to-day expenses – Everyday bills can really add up. Without the ability to earn, this money can help cover living expenses like food, utility payments, clothing and schooling.
  • School fees – With continued income, you can continue to afford to send your children to the school of your choice.
  • Additional care – Disabilities often incur the need for additional care or help around the house. Ongoing income can help to cover this.
  • Rehabilitation – Rehabilitation is often required to support your transition back to work. Ongoing income will help you to afford this.
  • Retirement savings – You can select options that will cover up to 85% of your income to help maintain your retirement income.

The benefits of protection

In 2010 alone, $1.033 billion of income protection claims was paid from 12 Australian insurers in the market place vii.

Causes of claim

  • Musculoskeletal – 41%
  • Cancer – 16%
  • Mental Health – 12%
  • Heart Disease/Stroke – 7%
  • Accident/Injury – 6%
  • Other – 18%.
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i IH W (2008) Australia’s health 2008, Cat. no. AUS 99, Canberra ii AIH W (2008) Cancer in Australia: an overview 2008, Cancer series no. 46, Cat. no. CAN 42, Canberra iii ABS (2007) Australian Social Trends 2007, Cat. no. 4102.0, Canberra iv Fabrizio, E (2007) Australia & NZ Disability Income Experience www.actuaries.

org/IAAHS /Colloquia/Cape_Town/Walker_-_Income_protection.pdf v AIH W (2008) Cancer in Australia: an overview 2008, Cancer series no. 46, Cat. no.CAN 42, Canberra vi Based on TAL’s Accelerated Protection, $2000 monthly benefit, 1 year waiting period, Age 65 benefit period vii The figures shown represent actual claims paid by AMP, Asteron, AXA, BT, CommInsure, OnePath, Macquarie, MLC TAL & Zurich from 1 January 2010 to 31 December 2010.

**some insurers can cover in excess of 70% income, see terms and conditions in the applicable pds.

General Advice Warning:

The information contained within this website does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances or you may make a decision that is not in your best interests.