You always take out insurance for your car, your phone or when you travel overseas but what about insurance for your most important asset – your income?
Income protection insurance, also called salary continuance, provides a payment for up to 80% of your salary should you be unable to work due to sickness or injury.
Given that neither your sick leave nor the financial support of your family are likely to last forever, having income protection provides you with cover if you are unable to earn an income for an extended period.
Choosing the right options
Income protection insurance is generally relatively flexible, allowing you to tailor a policy that meets your individual needs and budget.
You can do this through choosing:
* Your ‘waiting period’ is the period of time before you start receiving benefits when you make a claim.
A 30-day waiting period is a popular choice as you can often fall back on your sick leave until then, if needed. As a guide, the longer the waiting period, the lower your premiums will be.
* Your ‘benefit period’ is the period of time for which you will receive benefits after you stop working.
Most policies’ options include 2 years, 5 years, until you reach 65, or until you reach 70, again, a shorter benefit period means lower premiums.
* An ‘agreed value’ or an ‘indemnity’ contract. An ‘agreed value’ contract is based on a specific monthly payment if you make a claim, while an ‘indemnity’ contract means your monthly payment will be based on your salary when you make a claim. An ‘agreed value’ contract is generally more expensive than an ‘indemnity’ contract.
You can pay for income protection insurance either out of your salary or, if you hold it within your super fund, via super contributions from you and from your employer.
Holding your income protection insurance within super can be cost-effective, as it means there will be no impact on your day-to-day cashflow, although you do need to bear in mind the fact that this will reduce the amount you are accumulating in your super fund.
The benefits of income protection
If you are unable to work for an extended period, having income protection in place means that you can:* Keep your lifestyle intact as you will have funds to cover your ongoing living expenses and lifestyle choices, like rent or mortgage payments, utility bills, and education, food, recreation and holiday expenditure.
* Focus on getting better without having to worry about ongoing expenses as well as contribute to any rehabilitation or medical expenses that may arise from your illness or injury.
You can easily adjust your cover to take into account major life changes, such as taking out a mortgage, getting married or having a baby – and with your premiums being 100% tax deductible, income protection insurance is also very tax-effective.
We can help you to decide on an appropriate package for income protection insurance based on your individual circumstances. For further information contact us at Cotter Financial Services on P: (07) 3333 2610
The information provided is general in nature and does not take into account your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.
Cotter Financial Services and its advisers are Authorised Representatives of Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306 Australia Credit Licence No 357306 trading as Fortnum Financial Advisers.