Income protection insurance will allow you to have a monthly benefit payout in the event that you are suddenly unable to work due to injury or illness. You will be able to get a payout of up to 75 per cent of your normal income, which may also include fringe benefits, bonuses and commissions. The payout will enable you to meet your financial obligations, such as paying for the mortgage, settling debts, paying for school fees and meeting your daily living expenses. You will therefore be able to maintain your standard of living and relieve yourself and your family of financial strain.
There are benefits you stand to gain once you take out income protection insurance. Deduction of tax from income protection premiums is at 100 per cent if you have a standalone policy. However, if you have taken out your income protection policy within your superannuation fund, then your insurance premiums will not be tax deductible.
The monthly benefit refers to the amount of money you will be paid when you are unable to work. This amount is treated as a regular income and will therefore be subjected to tax. You are given the option to select how much you would want your monthly benefit to be when you start off your policy. However, this amount cannot exceed 75 per cent of your normal monthly income. According to most insurance providers, your income constitutes your gross income and your superannuation.
The benefit period is the length of time within which you will be receiving payments. You can select a benefit period of 2 or 5 years, or up to the age of 65 or 70 years. A large number of people prefer to have a benefit period going up to the age of 65 years. This is because the period before you reach age 65 is the most critical, more so if you are making mortgage payments. However, the catch is that if you choose a longer benefit period, then your premiums will be high.
The waiting period is the amount of time within which no benefit will be paid to you once you are unable to work due to an illness or injury. You will be allowed to choose your preferred waiting period at the start of your policy. The waiting period can be from 14 days up to 720 days. You therefore need to consider the amount of time within which you will be able to support yourself before the payout from the insurance kicks in. It therefore follows that the longer the waiting period, the lower your premiums will be.
There are insurance providers that will offer you an accident benefit. This means that if you are unable to resume work due to an accident, you can easily access the benefits of your income protection insurance. Reduction of the waiting period is done so you can access your benefit immediately. You will therefore be entitled to payment for everyday that you are unable to resume work. You will however have to pay an additional premium amount to enjoy this cover. The accident benefit is quite popular among businesspeople.
Kerrie Peacock is a keen analyst of the Australian personal insurance industry and offers useful and practical insights. For more information and advice, log on to www.mecovered.com.au/income-protection-insurance-deduction.