Income Protection

Most people don’t think twice about insuring their home and contents, cars and boats. Yet, fail to insure their most important asset of all – their ability to earn an income. This cover is particularly important for self employed people. If you’re not working, who is?

Income Protection typically provides you with 75% of your normal gross income. Whilst it’s not your full income, it will go a long way to meet your mortgage or rental payments, help cover day to day living expenses whilst you cannot work and ensure you can take time off to fully recover without having to worry about your finances.

Income Protection premiums are generally tax deductible, but the payments received are considered income therefore are subject to tax. Sometimes the payments can be reduced if your are receiving government payments or workers compensation at the of claim.

Income Protection will provide you with a monthly payment in the event that you ability to earn an income is reduced due to an illness or injury. Income Protection can cover you for short periods of time whilst you are unable to work as the disability does not need to be permanent or, it can continue right up to age 65 if the disability is more serious and ongoing.

Income Protection has a waiting period and a benefit period. The waiting period can be from a few weeks up to 5 years. This is the time you need to wait after making a claim before any payments can be made. The benefit period is the length of time the payments will be made after the waiting period has been served. This period can be from 2 years up to age 65.

So, if you have money in the bank and manageable expenses you can reduce your premiums by choosing a longer waiting period before benefits commence. However, if you have large debts and couldn’t easily cope with loss of income you can choose a shorter waiting period.

The value of the Income Protection policy at the time of claim is dependant if the policy is an agreed policy or an indemnity policy. An agreed policy means the amount to be paid on claim is based on your income at the time of application. It does not matter if your income has reduced at a later date. An indemnity policy means the amount to be paid on claim is based on your income immediately prior to claim and therefore may differ from the insured amount if your income has reduced.

What questions should I ask when considering this cover?

• How long must you be disabled before benefits become payable? (The waiting period)
• What is the maximum period for which the income benefit is payable? (The benefit period)
• How and when are benefits paid?
• Can the monthly income benefit be reduced for any reason?
• When does the cover start and end?