Income Protection vs Salary Continuance….
Typically, an Income Protection policy will insure your gross income up to 75%.
Most people insure assets like their cars and contents, but don’t insure the most important asset that they own – THEMSELVES and their ability to earn an income!
Here’s A Good Stat….
Do you know, a 30 year old earning $80,000 p.a. to age 65, will generate an accumulative income of $2,800,000 over their working life…? Yet, we mainly only insure our small and/or depreciating assets such as your car? Interesting isn’t it!
Your ability to wake up in the morning, get work clothes on, go to work and earn an income is one of the most financially important things in your life. It makes sense to get this right!
Tell Me More – What Are Some Details…?
Ok, you have a choice of Waiting Periods – which is the duration of time you elect to be off of work before your income protection policy commences. So for instance, if you chose a 30-day waiting period, you need to be off work for 60 days before your benefit payment will ‘kick in’. In this situation, you would not receive your monthly benefit until the end of 60 days. Generally, the longer the waiting period, the cheaper the premium.
You then have your Benefit Period. This is the time frame a claim will continue to pay you a benefit in the event you are unable to work. These generally range from either 2 or 5 years or to age 65 (our working time frame), with some companies offering cover to age 70.
There are additional benefits you can add to your policy, such as insuring your Super Contributions, having your monthly benefit Indexed each year whilst on claim or the Accident Option. This may be beneficial for Tradies or people in more active occupations! Lets be honest, you just want to get back on site so you can continue to work to finish the job, so you can get paid. The accident option, generally pays you 1/30 of your monthly benefit. This way, you can receive a payment in between your waiting period, so that if you go back to work before this time frame, at least you will still receive some payment, rather than nothing.
Do I Have Options To Set My Cover Up?
There are generally 3 ways you can structure your Income Protection cover.
1. You can place this cover within your super fund. This is called Salary Continuance. Due to legislation with a policy in super, you will generally only receive your month benefit (no additional benefits), and your policy will have standard policy wordings and basic cover. Your income isn’t guaranteed, so you will need to supply financial evidence if you make a claim. So, if you insure $100,000 income, but you’re only earning $80,000 at the time of claim, you will only receive a benefit based on $80,000. Salary Continuance is generally cheaper but you get what you pay for….
2. Owning a policy in your own name, is generally a must for all self-employed people. This is proper Income Protection. This ownership option allows you to guarantee your insurable income, set up comprehensive benefits and also claim a tax deduction for the premiums paid for your cover. This is a great option to get some additional tax advantage. Generally, Income Protection is a more superior policy than one owned in super and whilst it can cost a bit more, it is usually worth paying for better quality cover….
3. The other option here is that you can now split your income protection benefit, so that a portion is owned by your super fund, and the other portion owned by you. This option allows you to still achieve the same benefits an income protection policy offers owned by you, but allows you to have generally 80% of the premiums deducted from super whilst you pay the remaining 20% and claim a tax deduction. This option allows you to affect a comprehensive policy, whilst reducing your out of pocket expense. Keep in mind, only a few super funds allow this option to be funded from your super fund.
One size definitely does not fit all when it comes to insuring your income. So if your income is important to you…, you should ‘Private Message Me’ to work out the most efficient and cost effective strategy to ensure your family continues to receive income – even when you can’t earn it yourself. This is a big one. Don’t ignore your income….