Income Protection Insurance – Why you need it?
Income protection insurance insures your ability to earn income. Most of the times we insure our home, contents, investment properties, cars, boats and sometimes even our pets. But we often overlook and forget to insure our most valuable asset i.e. our ability to earn.
What will happen if you are unable to work due to injury or illness? Do you have sufficient savings to support yourself and your family during such difficult time? Most individuals struggle to make ends meet during such times. Nothing/no one can replace you, not even money. But having money available to your family members during such event will support you and your family during bad times.
So what can you do you insure yourself for such an event?
The answer is – income protection insurance.
A 30 year old on annual salary of $50,000 will earn $1,750,000 over next 35 years until their retirement. Income protection insures you for a set level of your income (commonly 75% of your gross salary) for an agreed length of time. In the event that you cannot work due to illness or injury, your income protection insurance will continue to pay you at the agreed level and for the agreed length of time. Without income protection insurance, your best option may be the government disability support pension that may not be enough to cover your monthly expenses.
Following factors should be considered whilst choosing the income protection policy –
- Waiting period – All income protection policies will have a waiting period i.e. a period of time that you must be non-working before insurance company will start paying you. Waiting period can range from 2 weeks to 2 years, the main question to ask yourself is how long can you survive without income. Do you have plenty of savings in your bank account, have plenty of sick leave, long service leave or plenty of annual leave to cover the downtime. If you have liabilities such as mortgage, personal loans, credit cards etc., then a shorter waiting period would be better. Bear in mind that shorter the waiting period, higher the insurance premium will be.
- Benefit Period – Under this type of policy, you will be covered for an agreed length of time and it is up to you to decide the length of time you will be covered for. This payment period can vary from 2 years to until you turn a certain age such as 65. The benefit period will affect the insurance premium.
Unlike other types of personal insurance, income protection insurance premiums are fully tax deductible on your personal tax return. Don’t forget to include the premiums in your tax return.
Note – This article only provides general knowledge on income protection and doesn’t constitute to personal or expert advice and nor does it take your personal circumstances in to consideration. Any reliance on this article is solely at your risk. The article is provided for general information only, Expert Tax are not engaged to render professional advice or services through this article. Expert Tax expressly disclaim any liability and responsibility to any person in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this article. No person should rely on the contents of this article without first obtaining advice from a qualified professional person.
We have partnered with qualified and experienced insurance broker who can assess your insurance needs and suggest an optimum level of insurance thereafter. For a no obligation discussion, contact Expert Tax on 0449 952 855 or email us your query at firstname.lastname@example.org
You can also send us your query via our website – www.expert-tax.com.au
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