Life Insurance specialist Michael Giansiracusa dishes out his top tips on how you can protect yourself should you be unable to work. The good news is - it isn't as expensive as you might think!
If you need help navigating the ins and outs of Income Protection Insurance, read on…
At one point in their working lives, 60% of Australians will be unable to work for a period of more than a month.
How long would you be able to survive on your savings if you suffered an illness or injury and were unable to work for a number of months? Could you meet your monthly financial obligations?
Income protection insurance is designed to protect you when you suffer an accident or illness that results in you being unable to work. In general, policies will pay up to 75 per cent of your annual income.
But, like any other insurance policy, there are different features and policy structures available - here are some things to consider before you commit to an Income Protection policy.
1. Think about how you structure your policy – it affects your premium
One way to help reduce your premium is to increase the waiting period between the time you suffer an accident or illness which sees you make a claim, and the time your payments begin. Your decision on this will depend on how long your savings allow you to self-fund.
If you have sufficient savings to continue to meet your financial commitments and lifestyle for 60 days rather than 30, this may be an option to consider to keep premium costs down.
Another way to minimise your premium may be to reduce the benefit period of the payments, for example you may decide to take out a policy that covers you for 2 years instead of 5 years.
2. Understand your options
This is where things can get confusing…
Stepped or Level?
There are two ways an Income Protection Insurance policy can be structured – on a Stepped or Level basis. A Stepped policy will see your premiums calculated in line with your age. Essentially this means your premium will increase each year as you get older. Alternatively, a Level premium structure will see your premiums higher at the outset of your policy period, but remaining constant as you age.
Agreed Value or Indemnity Value?
You can also elect whether you insure your income on an agreed value or an indemnity value. An agreed value will provide you with the security of knowing exactly what benefit amount you will receive at the time you make a claim. Alternatively, insuring on an indemnity value basis will see your benefit payment made in line with your actual income at the time of the claim.
We can provide you with advice on what will work best for you.
3. Don’t forget - premiums are tax deductible!
One of the benefits of Income Protection Insurance is that the cost of the premium is generally tax deductible at your marginal tax rate. This makes Income Protection far more affordable.
It is important to note however, that should you make a claim, your benefit payments are treated as income in the eyes of the Australian Taxation Office, and will be taxable at the time of your claim.
Of course, these are just a few points to consider. To find out more on the different options available and what will work best for you, contact your Whitbread Life advisor.
1300 424 627
This Whitbread insight article is not intended to be advice and you should not rely on it as a substitute for any form of advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number: 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.