Income Protection Insurance
Insurance for something you can’t see or touch, such as your income, may seem strange. But how would you pay your mortgage if you were unable to work?
We have asked our expert at Ausnet Financial Planning, Miral Thakker to explain more about this often-overlooked subject.
When considering insurance, it’s common for people to pass it off as a pesky added fee involved in owning a car, running a business or protecting a house against damage. Income insurance, on first glance, can seem like another costly precaution that’s unlikely to prove useful.
But when you think about how your income facilitates your lifestyle, it’s often at the top of the list in regards to things that you can’t afford to lose. Cars and houses can be replaced, but losing an income, perhaps for life, could see both lost.
Income protection insurance covers salary loss due to injury or sickness. Unlike workers compensation, it applies to injury or sickness at any place or time. And, unlike government allowances, it pays in accordance to your earning capacity.
“If someone is injured under worker’s compensation, for the first few weeks they receive a higher rate, but then it drops. Therefore, people’s standard way of living is sacrificed if they depend on this form of protection,” says Miral.
Income protection policies vary in regards to their terms and conditions, but they usually offer 75 per cent of gross wages for a maximum time period. It’s a form of insurance that is particularly important for people who have regular repayments to make against debts.
“The most important reason for income protection is when a person has a strong reliance on an income,” Miral explains.
“When you have someone with financial responsibilities, like a family or a mortgage, that’s an important time for income protection.”
Having a majority of your current income insured against the possibility of being away from work helps you avoid defaulting on mortgage payments, personal loans or credit cards.
It can be the difference between continuing along within your current lifestyle following illness or accident, or being forced to dramatically change your lifestyle due to an inability to repay your debts.
“Most people these days have enough stress already, with the economy and the price of housing going up. Income protection gives that little bit of extra peace of mind. It works when you can’t work,” Miral says.
A lot of clients don’t think they can afford the premiums.
“Premiums for Income Protection are tax deductible, if funded by you from your after tax monies. If cash flow is still an issue, paying for the premiums can be structured from your super fund,” Miral explains.
How much are you worth? We tend to value ourselves based on the physical assets that we own. However, if you lost the ability to earn an income due to sickness or injury, how much do you have at stake?
Example:
30 y/o male/female with an average income of $60,000/annum, with 35 years to retirement. Then the unthinkable happens, and they are unable to work ever again due to injury or illness.
The amount of money you would miss out on earning is $2,100,000 ($60,000 x 35 years).
If you had Income Protection in place you would receive an income of $1,575,000, over a period of 35 years.
Can you afford NOT to protect your income?
Considering how you will pay your mortgage if you were away from work for a period is essential, and we can work with you to help you find the right insurance to help ensure your investment in property is protected. Contact us today 1300 857 762 for more information.
