What is Income Protection Insurance?

Also known as “income replacement”, disability income”, or “salary continuance”.

Income Protection Insurance provides you with an income stream if you are unable to work due to an injury, sickness or accident. Benefits are paid to you on a monthly basis and cover is available up to 75% of you gross salary or taxable income.

Why do you need Income Protection Insurance?

Arguably, it is the most important type of insurance you should consider. Where would you be without your income? For the self employed, it is an absolute must!

People readily insure their cars, house, contents, boat and personal effects such as jewellery or sporting equipment, etc without hesitation. Many forget about the fact that they need to earn an income to maintain a certain living standard and to build wealth and provide for their retirement.

How well could you survive without your income, even if it was just for 12 months?…. How scary if it was for longer?

How does it work and how much does it cost?

The choice of cover depends entirely on your personal circumstances and there are a number of choices you should carefully consider such as;

What Benefit Period should I select?

This is a period over which a benefit is paid. You can generally select either a 2yr or 5yr benefit or to age 65.

What Waiting Period should I select?

This is the period you select before a benefit is paid. It’s like an excess period. The waiting period dictates how long you will have to wait before you are eligible to receive payment following a claim. The most common waiting periods are 30 days, 60 days or 90 days.

Premium costs vary depending on the combination of Waiting and Benefit Periods you choose. Typically, the premium for cover with a Waiting period of 90 days and a Benefit period of 2 years, will be less expensive than cover with a Waiting period of 30 days and a benefit period to age 65.

In choosing a waiting period it is important to consider your financial position such as your commitment to a mortgage or other debts and what funds you have at your disposal. Unused leave or sick leave entitlements may also influence your choice of waiting period.

The amount of Income Protection cover you can purchase is usually limited to 75% of your gross income if you are employed, (including employer superannuation contributions and any salary packaged fringe benefits).

Self employed applicants that are younger or starting out should give preference to a shorter waiting period such as 30 days.

If you are self employed it is usually limited to 75% of the income generated by the business due to your personal exertion less your share of any expenses.

Premiums also vary depending on your occupation and if you are a smoker or non smoker.

Is it correct that my premiums are tax deductible?

Yes. Income Protection premiums are tax deductible for most tax payers …every year. It is important to note therefore, that the after tax cost of your cover can be significantly less than the cost of the premium.