Income Protection

Income Protection Cover is designed to help secure your income if you were unable to work for an extended period of time due to illness or injury. Income Protection Insurance allows you to cover up to 75% of your monthly Pre-Tax income - you will continue to receive this monthly (once your waiting period has passed) until you return to work or to the end of the benefit period.

• Tax treatment
  Premiums are generally fully tax deductible. The after tax cost of the cover can therefore be significantly less than the cost of the premium. The monthly benefit payment is taxed assessable.
• Income Protection Options
  With income protection you are able to tailor the policy through adjusting the Waiting Period, Benefit Period and choosing either Indemnity or Guaranteed Value to suit your personal circumstances. These choices have an impact on the premium.
• Waiting Period
  Once the claim has been accepted, the waiting period determines how long before the income benefits start. The waiting period can usually be chosen from 14, 30, 60, 90, 180 days or even 1 or 2 years. The longer the waiting period, the lower the premiums.
• Other considerations with the waiting period
  Payments are made monthly in arrears, for e.g., if you choose a 90 day waiting period, the 1st payment will be received on the 120th day.
  Remember that if you cannot work you will have access to sick leave, be able to use any accumulated annual leave and potentially long service leave before income protection would need to kick in.
  Many companies offer an Accident Benefit option - which will waive the waiting periods in the event of an accident (this attracts additional premium).
• Benefit Period
  The benefit period, as the name suggests, is for how long in the event of a claim you will be continue to receive the monthly benefits. This can be 1 year, 2 years, 5 years or to a specific age, e.g. till age 60 or 65. 
  
  When selecting the benefit period, you will need to factor in the possibility of long term
  disablement, access to superannuation funds, estimated retirement age etc.
• Indemnity v/s Guaranteed Value
  With an Indemnity policy, you are insured for what you say you earn, but if you make a claim you have to verify your income. If your income has reduced since when you applied for cover, your claim will be paid on the basis of the reduced income.
  
  With a guaranteed value policy, you prove your income at the time of applying and insure to receive a set amount. The advantage is that you know what you will receive, regardless of changes in your income. The disadvantage is that these policies' premiums are approximately 20 per cent higher than for indemnity contracts.
  
• Increasing Claim Option
  This means that the monthly amount insured payable will increase every three months while you are on claim by a quarter of the indexation factor. When you stop being on claim, the monthly amount insured will be the same as it was on the policy anniversary prior to the end of the claim. If you choose not to take up this option then the Amount insured will stay the same (through-out the benefit period) as it was at the start of the claim. 
• How does Income Protection Insurance work?
  Gavin is a 44yr old maintenance manager. He and his wife Lillian are expecting their first child and have moved into their first home. With a new mortgage and Lillian working only 3 days a week, they don't have much left over as savings.  
  
  Gavin started having severe back pain and was diagnosed with slipped disc. He could no longer perform his maintenance job as it required manual work. Gavin's claimed on his comprehensive Income Protection Policy. Since he was on a 3 month waiting period and Insurers pay 1 month in arrears, he started receiving the monthly benefit payments (75% of his previous salary) 4 months after he initiated the claim.
  
  The policy also took care of rehabilitation and re-training costs to help Gavin get back to work. After 7 months of rehabilitation, his insurance company helped him to re-skill as a purchasing manager within the same company. Gavin was back in full-time work in 12 months. Without this money Gavin and Lillian would be forced to sell their home. They would not be able to meet Living Expenses and Lillian would be forced to find full time work and not be able to enjoy spending time with their new baby.