What is Income Protection Insurance?
In the dynamic realm of personal finance, one often-overlooked gem is Income Protection Insurance—a powerful tool to help your financial ship stays steady when unforeseen storms hit.
Let’s dig into the details of income protection insurance, checking out things like coverage limits, who’s eligible, how long you must wait, how long the benefits last, and the upsides and downsides of this important financial safety net.
Understanding Income Protection Insurance
Income protection insurance is your shield against the unpredictable twists of life, providing a safety net if you find yourself unable to work due to illness or injury. Unlike workers’ compensation, it covers a broader spectrum, ensuring you’re covered for various health-related or accidental setbacks that could impact your ability to earn a living.
How Much Cover Can You Get?
Typically, the coverage amount is about 70% of your total income, along with the possibility of including up to 100% of your SG (superannuation guarantee paid by the employer, equivalent to 11% of your gross income).
Who Should Consider Income Protection Insurance?
This isn’t just for the primary breadwinners; anyone with significant financial responsibilities should consider it. If your income is crucial for covering living expenses, mortgage repayments, and other financial commitments, income protection insurance is your ally.
Navigating Waiting and Benefit Periods
Selecting the right policy involves understanding waiting and benefit periods.
The waiting period is the time between your illness or injury and when you start receiving benefits. This can range from 14 to 90 days, with a longer waiting period often translating to lower premiums.
The benefit period decides how long you’ll receive benefits after the waiting period, typically ranging from 2 years to the age of 65.
Structuring Your Coverage: Inside or Outside Super?
Owning Income Protection Insurance in your super can help with personal cash flow since the premium is paid from your super balance. However, you’ve got to consider a few things such as the potential long-term impact on total super, especially if you’re still in the stage of building it up.
On the flip side, if you have income protection insurance outside of super (in your own name), you get extra flexibility and control over your policy. The bonus is that you should be able to claim the premiums as a tax deduction. However, keep in mind that the monthly benefits you receive will typically be subject to taxation whether held inside or outside of super.
Pros and Cons: Weighing the Options
The pros of income protection insurance are substantial—financial security during tough times, peace of mind, and potential tax benefits.
Yet, it’s crucial to balance these against the cons, like premium costs, potential medical exclusions, and meeting stringent criteria for claims approval.
Seeking Professional Guidance
As you navigate the waters of Income Protection Insurance, it’s wise to seek the guidance of a financial adviser.
Here at Profile Financial Services, we can provide personalised insights, helping you choose the right policy tailored to your unique circumstances. Our expertise helps you make informed decisions, setting sail toward a secure financial future.
