Income protection insurance can pay part of the income that you lose should you be unable to work due to an injury or an illness. It can help you cover your medical bills so you can focus on the most important thing – your health and recovery!
What Does Income Protection (IP) Insurance Cover?
If you are unable to work due to a partial or total disability, income protection insurance can pay:
- up to 90% of your income (pre-tax income) in the first 6 months, and
- up to 70% for a specific time period after 6 months.
This is meant to replace your income that is based on your yearly earnings in the 12 months before you got sick or injured.
It’s important to note, that each income protection policy and different providers have a specific definition or a requirement that must be met for a claim to be made successfully. Before purchasing IP insurance, it’s important to check the product disclosure statement, so you are aware of how that policy can best protect you.
Why Income Protection Cover May Be Important To You
Income protection insurance is considered particularly important if:
- You are a small business owner or you are self-employed and you don’t have annual leaves or sick leave.
- You have family members who depend on your income.
- You have debt, including a mortgage or a car loan that you need to pay whether or not you are able to work.
What You Need to Know When Choosing an Income Protection Policy
There are some things that you may want to consider checking before purchasing income protection insurance through either insurance providers, financial advisers or insurance brokers.
You may want to discuss your options with a qualified financial adviser who can discuss with you the following:
- how much income protection you should consider obtaining
- the income protection insurance cost
- the policy’s benefit payments
- If the benefit amount will cover your living expenses
Is income protection insurance tax deductible?
Depending on the types of benefits your policy covers and how your policy is funded, you may be able to claim a tax deduction on the premiums you pay.
You are often not able to claim a deduction if the policy you take out is through your superannuation fund nor if the policy pays you a capital sum to compensate for an injury.
What type of income protection insurance policy should I consider?
There are two types of policy is either of these two
- Indemnity Value Policy:
This type of policy is usually recommended for those who have a stable income as policyholders receive payments based on a percentage of their salary income when making a claim. Compared to other policy costs, this type is generally cheaper.
- Agreed Value Policy
This type of policy may be useful if you are someone whose income often changes year-to-year, as it allows you to be insured for a percentage of a specific amount that is agreed upon when purchasing this policy. When you purchase this type of policy the income protection premiums you may find the premiums typically more expensive.
Other Things You Need to Know About Income Insurance
- Waiting Periods
The policy’s waiting period is the amount of time that you must wait before you can make an income protection claim and begin receiving payments.
Depending on the type of policy and what is outlined in the PDS, you may have to wait somewhere between 14 days and 2 years. A general rule of thumb is the cheaper the policy, the longer the waiting period. Before choosing a policy and waiting period, it may be beneficial to check how much sick and annual leave, savings and emergency funds you have.
- Benefit Periods
This pertains to how long your monthly payments will last if you remain unable to work due to your illness or injury. Commonly, income protection policies offer up to 2 or 5 years, however, there are some that can offer up to a specific age (usually 65 years of age). You may expect, that the longer the benefit period, the more expensive the policy usually is.
- Stepped and Level Premiums
Generally, you can choose to pay for your income protection insurance premiums with either stepped premiums or level premiums.
- Stepped premiums are recalculated at every policy renewal and usually increase yearly based on the increased chance of making a claim as you grow older.
- Level premiums on the other hand charge a higher premium at the start of the policy. However, the increase of your premiums decrease over time as the costs aren’t based on your age.
Seek Life Insurance Advice from An Ethical Financial Adviser Today!
Income protection insurance is especially important for people whose families are dependent on their income. It’s also highly recommended to those with jobs that are quite risky. If you want to avoid the financial stress if in the case you acquire a sickness or injury that could impact your ability to work, you should consider obtaining this type of insurance. Income protection policies can be tailored to your personal circumstances and financial situation. It may be worthwhile to consider consulting your trusted ethical financial adviser in Adelaide about it.
Novo Wealth offers financial advice in Adelaide to those who wish to know more about their financial health. Whether you need advice about different types of life insurance, ethical investments, retirement planning or superannuation advice, Novo Wealth can help you.
Contact us today by booking a complimentary 15-minute chat!
