Why do you need Income Protection Insurance?
Food for thought:
– Most cars are less than $20,000, but 89% of cars are insured.
– Home contents are probably worth less than $50,000, but 87% of people have contents insurance.
– Most houses could probably be rebuilt for $200-300k. 77% insure their homes to be rebuilt.
Why is it then that only 6% of the population have adequate insurance for an asset far more valuable than any of the above?
Income Protection is arguably the most important type of insurance you should consider. Where would you be without your income?
People readily insure their cars, house, contents, boat and personal effects such as jewellery or sporting equipment etc without hesitation. Many forget about the fact that they need to earn an income to maintain a certain living standard and to build wealth and provide for their retirement. In fact, a typical Australian with a 40-year working life between the ages of 25 to 65 will earn more than $2.2 million.
How well could you survive without your income, even if it was just for 12 months?…. How scary if it was for longer?
Statistics tell us that:
– More than 3 in 4 Australians will be diagnosed with a serious illness in their working life.
– 1 in 3 women and 1 in 4 men will suffer cancer at some stage in their lives – over 1/2 of whom will live for longer than 5 years after diagnosis.
How will you pay the bills? The mortgage repayments? School fees, etc etc?
You may get a limited amount of sick pay from your employer if you’re salaried, but it won’t last long. There’s always workers’ compensation, but that only covers you for work-related injuries – a small percentage of causes of disability.
But if you have an income protection policy it will pay up to 75% of your income allowing you to maintain your lifestyle pretty much intact, and to keep paying off the home mortgage and any other loans you may have.
The actual monthly income you are paid from the policy can be agreed on when you take the policy out (a so-called ‘agreed value per month’ policy). Or it can be calculated according to the income you’re earning at the time when you make the claim. These so-called ‘indemnity policies’ are cheaper, but riskier – if your income has fallen at the time you make a claim, you risk a lower payout.
Just like Life Cover, the premiums increase with age, if you smoke, if you’re male and if you are in a risky occupation. There is usually a waiting period between claiming and getting your first payment – the longer the waiting period, the cheaper the premium. The premiums are tax deductible, but the income stream paid out by the policy is taxed.
A word of warning about these policies – there is a lot of variation from policy to policy and the devil is in the detail.
To establish Income Protection or to get your existing policies reviewed, speak to a Smith Wealth Partners adviser now.
Sources: Money Management, ABS Statistics, Cancer Council, CommInsure.