For working Australians, the regular flow of cash from our wage or salary is the thing that keeps households ticking over. Yet only one in three people directly insure their income.
The idea behind income protection insurance is pretty straightforward. You can insure yourself for around 75-80% of your income if you can’t work because of illness or injury. So, if your annual income is $80,000, you could insure yourself for a yearly sum of about $60,000, which is paid for the duration of the agreed term oruntil you’re able to return to work.
This type of cover fills an important gap left by workers compensation insurance, which only kicks in if your illness or injury relates to work. If you have life cover through your super fund, income protection insurance may be bundled with your life cover. This is something worth checking.
If it turns out, you have income protection insurance in place, be sure you understand how it works. Funds tend to provide one-size-fits-all policies, which may not suit your circumstances.
If you’re not protected, or you’d like to tailor your cover, it is possible to organise directly held cover of your own.
Income insurance has become more affordable in recent years though the cost varies widely between insurers. That said, the three key factors that shape premiums are whether you smoke, your age, and the sort of job you have.
As a guide, research group Canstar found a 27-year old (non-smoking) male accountant could pay monthly premiums of $42 for cover worth $3,125 per month. A 52-year old accountant would pay around $105 each month for the same level of protection. By contrast a 20-something truckie could pay monthly premiums of $63 for that same $3,125 monthly payout.
Sure, this is another expense for households to wear. On the plus side, premiums for income protection insurance can normally be claimed on tax as any payout you receive is taxable.
If you’re strapped for cash, holding income insurance through your super fund may be fine. If you’re approaching retirement and you’d like all of your super contributions to go towards your nest egg rather than insurance premiums, arranging directly held income protection insurance may be the right strategy for you. Your financial adviser can point out the best approach for your needs.
Check out the Canstar website for its latest star rating of income insurance providers. Or speak to ipac’s personal risk insurance partners AFRM who can help you find protection that best suits your needs.