Income Protection

Income protection is designed to cover your wage, salary or income package in the event of disability due to accident or sickness. In the event of a disability which forces people to quit work for a short or long period of time many people would not be able to maintain their current standard of living. Income protection will cover you 24/7 worldwide and is generally tax deductible.

What is it?

This one is my favourite.

  • I always say, the main reason people work is that they need to earn a living. In the event of a disability which forces people to quit work for a short or long period of time many people would not be able to maintain their current standard of living. Income protection would insure that most of their wage will continue to be paid to their desired age chosen
  • The best part is that Income Protection a tax deduction can generally be gained by anyone

Why do you need it?

What’s your greatest asset?

  • Car
  • Home
  • Ability to earn Income

Which one of the above do you generally think of insuring first. Your car may be worth $50,000, house – approximately $250,000 (building costs only), your ability to earn income for say 25 years at $50,000 per year, indexed, is worth around $2,000,000!

What about Workers Compensation/Sick Leave

  • Many people feel that income protection is only for the self employed but if you are an employee, how long will your generous employer continue to pay you sick leave if you can’t work – 3 months, 6 months etc.
  • How long can you survive on your savings?
  • Work Cover does not pay a huge lump sum any more if you are substantially incapacitated. In fact, 90% of my clients’ claims have nothing to do with workers compensation. Therefore they would not have had any compensation to fall back on had they not had insurances. Workers compensation generally does not pay for illness such as cancer, stroke or heart attacks.
  • Work cover only covers you at work or to and from work and many serious injuries happen outside of work.
  • Do yourself a favour and find out about how much you are able to claim under your Work Cover Scheme and what are the restrictions – you may get a shock.

How much will I need?

  • Most income protection providers will only allow you to cover 75% of your gross salary.
  • For self-employed people it is 75% of gross income less business expenses.
  • Proof of income is preferred and in some cases required up front to save any potential proof problems at claim time. For self employed persons Add Back Calculations are made to substantiate correct income, similar to calculations for banks when applying for a home loan.

Some Specific Terminology you will need.

  • Benefit Period – the maximum length of time you will get paid. It can vary anywhere from 2 years up until age 70.
  • Waiting Period – the excess period before claim payment. From 14 days to 730 days. Depending on the type of contract you chose the excess means you will not be paid for any event for your waiting period chosen.  Payable days start to accrue once you have passed your waiting period.
  • Agreed Value Contract – pays what’s on the policy, even if your income decreases, suitable to self employed.
  • Indemnity contact – for roughly a 15-20% discount you can chose to have a non agreed value policy.
    • This policy underwrites your financials at claim time and will only pay up to a maximum of 75% of your gross income package. Therefore if your income has dropped substantially you may not be covered for what you are paying for. This is generally suitable for employees whose income does not fluctuate.
  • Non cancelable Contract – the insurance company cannot cancel the contract for repeated claims or if your medical condition changes once the policy is in force – you can cancel by not paying premiums.
  • A Duties Based Definition will pay if you can not do at least one duty of your occupation.
    • an income based definition will pay if your income reduces due to disability by a certain percentage.
    • an hourly based definition will generally let you work up to 10 hours a week and still be on full claim.
  • Duties based definition vs Income based definition vs hours based criteria
  • Look to a policy that is suited to your occupation, age, income. We will advise you of the differences.

The table below gives you an idea of the benefits available under each Contract – we will discuss your requirements to help you make the appropriate decision.

Policy Features Basic Plan Plus Plan
Interim Cover Yes Yes
Total Disability Yes Yes
Partial Disability Yes Yes
Choice of Waiting Period Yes Yes
Choice of Benefit Period Yes Yes
Guaranteed Renewable Yes Yes
Non smoker discount Yes Yes
24 hour worldwide cover Yes Yes
Choice of Agreed Value or Indemnity Yes Yes
Policy Benefits Included (at no additional cost)
Inflation Protection Yes Yes
Elective Surgery Yes Yes
Recurrent Disability Yes Yes
Waiver of Premium Yes Yes
Extended Care Yes Yes
Rehabilitation Expense Reimbursement Yes Yes
Scheduled Injury Benefit Yes Yes
Specified Medical Conditions No Yes
Rehabilitation No Yes
Overseas Assist No Yes
Accommodation No Yes
Bed Confinement No Yes
Family Support No Yes
Housekeeper No Yes
Job Security No Yes
Return to Work No Yes
Optional Benefits (extra cost)
Increasing Claim Yes Yes
Retirement Protection Yes Yes
Day One Accident Yes Yes
Business Expense Yes Yes

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