What is income protection insurance?

Income protection insurance provides financial support if you’re unable to work due to illness or injury, covering a portion of your lost income. It typically pays:

• Up to 90% of your pre-tax income for the first six months.
• Up to 70% for a specified period thereafter.

Do I need income protection insurance?

Consider getting income protection if you:

• Are self-employed or own a small business.
• Have dependents who rely on your income.
• Have debt obligations, like a mortgage.

What is the waiting period?

The waiting period for income protection insurance is the time you must wait after becoming unable to work due to illness or injury before your insurance payments start. Waiting periods typically range from 14 days to two years.

Key points to consider:

• Eligibility: You must be unable to work at the end of the waiting period to qualify for payments.
• Cost: Policies with longer waiting periods tend to be cheaper, as the insurer is less likely to make a payout.
• Personal Financial Buffer: When selecting a waiting period, consider how much sick leave, annual leave, savings, or emergency funds you have. A longer waiting period might be suitable if you have enough savings or benefits to cover your expenses for that time.

Key considerations when choosing a policy:

• Policy Type: Choose between indemnity value (based on your salary at the time of the claim) or agreed value (locked in at sign-up, no longer available for new policies post-March 2020).
• Waiting Period: The period before payments begin can range from 14 days to two years. Longer waiting periods reduce premiums.
• Benefit Period: This is how long you’ll receive payments. Options include 2 or 5 years, or up to a certain age (e.g., 65).
• Premiums: Stepped premiums increase with age, while level premiums remain more stable but start higher.

How do I buy income protection insurance?

It’s a good idea to check if your superannuation fund already provides income protection insurance, as many funds offer default cover, often at a lower cost than buying directly from an insurer. If you find that the default level of cover isn’t enough, you can typically increase it through your super fund.

Other ways to buy income protection insurance:

• Insurance broker: Can compare policies from multiple providers.
• Financial advisor: Offers personalised advice based on your specific needs and financial situation.
• Direct from an insurance company: You can tailor your policy more directly to suit your requirements.

Is income protection insurance tax deductible?

Premiums paid for income protection insurance outside of super are usually tax deductible, which can help offset the cost. Policies outside super often offer more coverage and benefits, allowing for greater flexibility and higher payouts. However, super policies can be more cost-effective for basic protection.

What you need to tell your insurer

When applying for or changing your income protection insurance, insurers will ask for important information to assess the risk and determine the terms of your policy. You’ll be asked about:

• Age: Your age affects the risk level and premium cost.
• Job: Some occupations are riskier than others, impacting premiums.
• Income: Your salary, wages, or commissions will determine the level of cover.
• Medical history: Past or existing health issues may affect your cover and premiums.
• Lifestyle: Whether you smoke or participate in high-risk hobbies like skydiving.

If an insurer doesn’t inquire about your medical history, the policy may have more exclusions or narrower definitions, limiting coverage.

Why full disclosure matters

Providing complete and honest answers is essential, as any misleading or incomplete information can lead to the insurer:

• Cancelling or modifying your cover.
• Declining claims, leaving you without the expected benefits.

Making a claim

Our Fiducian Financial Advisor can assist you in making a claim under income protection insurance. Any payments received must be included in your tax return, as they are considered income.

For further information book a complimentary initial consultation with our Fiducian Financial Advisor.

Source: moneysmart.gov.au

Lindale Insurances Pty Ltd ATF Lindale Insurances Trust ABN 27 027 421 832 is a Franchisee of Fiducian Financial Services Pty Ltd, Level 4, 1 York Street, Sydney NSW 2000. AFSL 231103 ABN 46 094 765 134.

The information (including taxation) provided on this website is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.

Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of Fiducian. They cannot be reproduced in any form without the express written consent of the author.