Income Protection Insurance

Most income protection insurance policies pay out monthly payments to replace your income should you become permanently or temporarily unable to work due to illness, injury or disability. You can usually choose how long you will need to wait before the benefit payments commence and how long it will be paid for. Choosing a longer waiting period, during which you have time to pay more in the way of premiums, and a shorter benefit payment period can reduce your premiums, in some cases significantly.

It may be that you have had an accident and it’s going to take months to recover, or maybe you can never work again through illness.

Most policies pay employees up to 75% of your net income either for a specified period or until you reach the age of 65. Income protection insurance policies can be held within a superannuation fund but the benefit period may be as little as 2 years! Employers and business owners can usually expect to receive ‘earnings after business expenses and before tax’ but some ancillary benefits are available to protect superannuation contributions.

There are two ways to purchase income protection insurance, ‘agreed value’ or ‘indemnity.’

With the agreed value option, you will be covered for the agreed value of your income at the time you take out the policy. The indemnity option means your payout will be based on your earnings for the 12 months immediately prior to making a claim. In both cases, premium payments are tax deductible but payouts are assessed as income.

Benefit payments may not start immediately after a claim is made. You may have to wait for as little as 14 days or as long as two years. When you take out the policy you can usually choose the waiting period. If you choose a long period, you must be certain you have enough money set aside in savings to see you through the first few months – or maybe a year.

Payments will be made for a certain period of time known as the benefit period. Once again, you can choose the benefit period for your policy.

TAG Financial Planning Pty Ltd t/a TAG Wealth Solutions. Authorised Representatives of GWM Adviser Services Limited, an Australian Financial Services Licensee.