Income Protection Insurance
Income protection insurance provides you with a monthly income should you become totally disabled, however, the disablement need not be of a permanent nature.
Each insurance company defines Total Disablement, but generally speaking, the benefits are paid if you are not working and are unable to earn your normal income due to illness or injury.
Generally speaking, the maximum cover is 75% of your salary package (for employees), or earnings after business expenses and before tax (for business owners). However ancillary benefits can be obtained on top of this to protect your superannuation contributions and also protect you in case of a severe sickness or injury.
Income protection insurance can be purchased under an ‘Agreed Value’ or ‘Indemnity’ option. Agreed Value allows cover for the agreed value of your original application for income protection insurance (proof required), whereas Indemnity cover only allows you to claim upon presentation of proof of current income at point of claim (i.e. previous 12 months earnings).
It is important to remember that benefit payments usually do not start immediately - an excess or waiting period applies during which no benefit is payable. The waiting period can be as short as 14 days or as long as two years. When selecting your waiting period, you need to consider the financial resources you have available (e.g. savings set aside, sick leave and long service leave).
Once benefits start, payments are usually made monthly in arrears. The maximum period of time that payments continue is called the benefit period. A range of benefit periods are available – some as short as one year.
Is income protection insurance tax deductible?
Premiums for Income Protection Insurance are tax deductible and any proceeds are assessable as income in the event of a claim.
How much cover?
If you suffer a loss of income because of illness or injury, you will need money to assist with living costs and medical expenses. The amount of cover will depend on your:
- Access to savings; and
- Willingness to use savings.
Chris Humphrey Private Wealth Management is conveniently located on the outskirts of Brisbane's CBD.
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