Income Protection: What You Need to Know
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As you know, not all income protection policies are the same and 99.9% of the time the benefits and finer details can be complex. I want to outline some key things to consider when choosing Income Protection for you.
First, I want to highlight the importance of seeking advice.
You may recall the Four Corners episode which brought to light the real need to obtain financial advice when selecting an insurance policy.
Following that, you may have come across this article in the Sydney Morning Herald which further provides evidence on why you should seek advice. The article titled “Insurer tells family saving daughter’s life is ‘elective surgery’” is worth a read as it touches on the fine print that is often very easily missed but has a big impact on your family’s life should something unexpected arise.
Benefits on offer
Most insurance companies offer up to 75% coverage of your income until you’re able to return to work or have reached the maximum benefit period allowed by your policy. Others offer an additional 8% provided the policy holder is qualified. It is important that you to review what benefits your income protection covers. You may find your insurance company offers 2 or more benefits such as cosmetic surgery benefit, death benefit and day one claim benefit at no additional cost.
The waiting period
One of the most important things to consider when considering Income Protection is the waiting period of your policy. All policy holders are required to wait for a certain number of days or months before they receive their first payment.
Waiting periods can be anywhere between 14 days and 2 years and yes, the shorter the waiting period, the more expensive premiums become. You need to look at your financial situation. How long can you cover the cost of living until you receive your first payment? Do you have sick leave? Annual leave? Savings or assets that could provide an income during the waiting period?
Holding it in your name
I find that, in my profession, a majority of clients hold income protection within their super. As an advisor who is an advocate for life insurance, and in particular income protection, my preference is to always hold an income protection policy in your personal name. There are many reasons for this:
Premiums are tax deductible
You are able to access many more features than if you were with 100% super owned policies. This is mainly due to legislation rather than product offerings.
The policy is portable. This is opposed to holding it in super where you may be required to retain the super fund for the remainder of your working life if you cannot replace the policy.
Go with what best fits you
Though my preference is to hold the policies personally, I am certainly aware that some people, due to budget constraints, are unable to fund the premiums. Don’t just pick a policy based on a recommendation of your friends or next door neighbor.
Remember, the protection should cover your situation, not assume your situation fits the mold of the protection. This is where you need to consider the pros and cons of super vs non super and weigh up the options that best fit your circumstances. At least then you have the opportunity to make an educated decision.
Knowing where to look
It should be noted though that since a change in legislation a few years ago, to what policies can be held inside super, we have seen more sophisticated and diverse policies available. While this prevents scenarios such as the above Anderson elective surgery dilemma from happening again, not everyone offers these policies. For example, any industry fund does not offer such a policy.
Dealing with an Adviser will ensure you consider a wide range of covers that could best suit your circumstance.
This is just a summarized glance but as you can see it can be a very complex world. This is why it is recommended you obtain professional advice.