Life Insurance

“I don’t own a house, so do I need life insurance?” is a question I receive a lot in my role. My response is always: “what is your most important asset?”

While the common replies to this question are “my car” or “my phone”, the real answer is actually something less tangible.  For a large percentage of the working population, the ability to earn an income is your most important asset, and in many cases, your family’s most critical asset.

If you are unable to work for an extended period due to injury or illness, and your sick leave and annual leave allocations have been exhausted, it can be challenging to support yourself financially – particularly if you are self-employed.  Here are some simple answers to other common questions and misconceptions about Income Protection.

 

WHAT IS INCOME PROTECTION AND HOW DOES IT WORK?

Income protection insurance is a monthly payment aligned to a maximum of 75% of your income at the time of application. If you need to make a claim, the benefit will start once the waiting period has been exhausted and will continue to pay a monthly benefit until you return to work or the benefit period expires, whichever comes first.  

 

WHAT DOESN’T INCOME PROTECTION COVER?

Income protection will not cover you in the event of employment termination or if you are made redundant. It is designed to assist a policyholder in the event they cannot perform their job, due to illness or injury.  As part of the application process, each policy is assessed individually, taking pre-existing medical conditions into consideration. At time of implementation, the policy terms will outline what is covered and any exclusions that apply.

 

WON’T MY SUPERANNUATION FUND COVER ME?

It is a common misconception that income protection insurance provided within superannuation is adequate in the event you are unable to work. While Income Protection, or Salary Continuance is included as a default in some superannuation funds, unless you have updated the sum insured to reflect your income, there will be a discrepancy between the amount you earn and the benefit you receive.

As an example, a common default sum insured is a $3,000 monthly benefit, which aligns with an annual salary of $48,000. The cover is usually limited to a 90-day waiting period with a 2-year benefit period. For someone who has not updated their sum insured to accurately reflect their income, relying on a superannuation fund for income protection can be extremely risky. It also highlights the importance of reviewing your policy to ensure you have the right cover in place.

 

ARE PREMIUMS TAX DEDUCTIBLE?

Income Protection premiums are tax deductible when you pay them yourself via credit card or direct debit. Alternatively, to free up cashflow, the premium can be funded via your superannuation fund.   

 

With You All The Way

To find out more about income protection insurance and how it can be used to protect your financial wellbeing, feel free to reach out at any time.

 

Tyler Scarce

Risk Adviser 

tyler.scarce@honanlife.com.au

 

 

Learn about the Golden Rules for Purposeful Life Insurance Policies. 

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