Income protection insurance (also known as salary continuance) is designed to provide a regular income in the event you are unable to work due to sickness
or injury. Generally, income protection insurance provides a regular income during a period of disablement for up to a pre-determined and agreed benefit period. Generally, the benefit amount payable is up to 75% of your income.
Most income protection policies offer a range of waiting periods before you start receiving your insurance benefit (with options normally between 14 days and
two years). The shorter the waiting period, the more the insurance will cost. You can choose from a range of benefit payment periods, with maximum cover generally available up to age 70. The longer the benefit period, the more the insurance will cost. Income protection insurance is increasingly important when
borrowing as it can help meet loan repayments if you are unable to work due to illness or injury. You should ensure your insurance cover is adequate for your needs. Under-insurance could result in serious financial difficulty.
Premiums can be either stepped or level. Stepped premiums are comparatively cheap for the young but increase with age. This is because they are calculated on age-based mortality (death) statistics (i.e. in any one year the older the individual is the more likely they will die). Stepped premiums are good if the cover is needed for a small number of years only. Level premiums are averaged over the lifetime of the policy, in the early years the amounts paid will be greater than stepped premiums for the same year, but in the latter years the amount payable will be less.
Income protection can be owned by you as an individual or within your Superannuation with most Australian Superannuation funds offering a default level of cover whilst receiving employer superannuation guarantee contributions.
By holding your Income protection insurance policy inside your superannuation fund, you minimise your out of pocket costs by having premiums paid from your superannuation fund, premiums are also tax deductible to your superannuation fund. However, holding your insurance policy inside your super fund can reduce the balance of your superannuation account, which means you need to ensure your super contributions are enough to fund your premiums as well as allow your super balance to grow.
How to apply for life insurance and who can set it up?
Constructing an effective insurance plan requires a detailed analysis of the client’s current situation and their future goals and objectives. A financial adviser can assist you with determining how much income protection you may need based on your current, past and future income.