Income Protection 

  

Income protection insurance will pay you a replacement  income if you are sick or injured and unable to work and earn a living as a result.  It is far more comprehensive than workers compensation because you are covered at home, on holidays as well as at work.

  

Premiums for income protection insurance are generally tax deductible and if you need to claim, the benefit payments will be taxable income.

  

Income protection policies have waiting periods during which you will not be paid.  You can think of this like an 'excess' on your house or car insurance - the waiting period is the part of the claim you will have to fund yourself.  The longer you can afford to wait before being paid the cheaper the premiums will be.

  

Another important variable is the benefit period which is the amount of time the policy will continue to pay while you are off work.  An insurance policy that only pays for 2 years will be cheaper than a policy that will pay until age 65 or 70.

  

You can generally insure up to 75% of your actual income.   For employed people we commonly insure 75% of wages + compulsory super + regular bonuses.   For self employed  people it's a bit more complicated.  We will work with you to determine an appropriate benefit after analysis of your company, partnership and/or trust tax returns and financial statements. 

  

One last important feature of an income protection policy is the financial basis upon which it is underwritten by the insurance company.  If it is agreed value or guaranteed it means the insurer has sighted sufficient financial evidence to lock in the benefit and generally this means no further proof required at claim time if you are completely off work.  (If you are able to work some of the time and suffer a drop in income you will still need to prove your current income no matter what sort of cover you have.) 

  

The alternative to agreed value or guaranteed basis is indemnity.  Indemnity means that the insurer will ask you for financial evidence of your earnings before paying your claim.  If your insurable income is lower than the benefit on your policy you will be paid less.

  

There are many variables with income protection polices and it pays to get some expert advice and review your situation every couple of years or sooner if things are changing rapidly in your life. 

  

  

  

This information (including taxation) is general in nature and does not consider your individual circumstances or needs.  Always seek professional advice before making a decision and consider a Product Disclosure Statement. Information is for Australian residents only.  Anita Muecke trading as AVA Insurance Consulting Group is an Authorised Representative of Millennium3 Financial Services Pty Ltd AFSL 244252. To view contact details, Financial Services Guide and M3 Privacy Policy please click here.  

  

 

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