Protecting your Home

Most of us understand the need to have car, house and health insurance, but overlook the most important one – income protection insurance. If you became ill or injured and could not work for 12 months or longer, could your family survive on your savings? Most could not, unfortunately. If your primary income is from your personal exertion, then you should consider this type of insurance.

What features should I beware of in a policy?
Make sure the policy you choose has a broad definition of income and takes into account sources of income such as car allowance and overtime. If you're self-employed, you need to be able to cover the running of your business as well as your salary. Ideally, a policy will also reflect increases in income in line with inflation. Also make sure the policy is "guaranteed renewable". This means that the insurer must renew the policy if requested by the insured, but there is no guarantee on the premium which will be charged. Also, make sure you are happy with the policy’s “Benefit Period” & “Waiting Periods”.

The benefit period is the amount of time that the claimant will receive income supplement benefits. The benefit period for an income protection policy starts from the expiry of the waiting period and continues for the period agreed in the policy, as long as the person continues to be totally or partially disabled. The longer the benefit period, the higher the premium. The most commonly offered benefit periods are 2 or 5 years, or until age 60 or age 65.

The waiting period is the minimum number of days the insured person is unable to work before his income protection insurance policy payments start. The longer the waiting period, the lower the premiums. The most commonly offered waiting periods are 14 days, 30 days, 2 months, 3 months, 6 months, 12 months or 24 months. As per any agreement, make sure you read the terms and conditions and understand exactly how they apply.

Where can I get this type of insurance?
Income protection insurance is available from a licenced insurance broker. The benefit of using an insurance broker is that you can get a number of quotes from a range of insurers at the same time ensuring you get a choice.

How much will it cost?
There are a number of factors which determine the cost of an income protection policy. These include your occupation, age, sex, the state of your health, previous medical conditions and your smoking habits. As a guide we have put together a brief table on what an accounting clerk with a current annual income of 45,000 would pay in income protection insurance premiums with a 30 day “waiting period” and a benefit period to age 65.

Age      30                     $34 / month

Age      35                     $38 / month

Age      40                     $58 / month

Age      45                     $60 / month

Age      50                     $95 / month

Please note: The insurable value is 75% of the current annual income.

Income protection insurance for most people is fully tax deductible. However when benefits become payable, they are deemed to be a replacement of your income, and as such are taxed accordingly.

Disclaimer
This web site is not designed to provide personal financial or investment advice. The information provided is general in nature and does not take into account your particular investment objectives, financial situation or investment needs. We recommend that you speak to a licenced insurance advisor or life insurance broker before you make any decision regarding risk insurance.