We had a client recently who broke their leg. It was a simple scenario. driving along 1 day and was involved in a car accident. At first the doctors said he had a simple broken leg, however, it required pins and the client was in hospital and more importantly off work for 10 weeks. Once out of hospital, there was regular physio appointments and costs. The car was insured.
Most people would renew their car insurance against any damage or loss, fewer people would insure their income. Income protection provides cover to a person if they are unable to perform their usual occupation on a daily basis as a result to injury or sickness. Earning an income would be a person’s most valuable asset in life. The aggregate present value of an average professional’s after-tax earnings from age 25 through to age 60 is estimated to be over $3.5 million.
What to be aware of when it comes to income protection:
Income protection policies usually pay a monthly benefit for a specific period of time called the ‘benefit period’ usually until age 65 (although cover inside super often only pays a two-year benefit). Income protection does not cover you for involuntary unemployment (such as loss of job or redundancy).
The payment of an income protection benefit allows you to continue to afford to pay for living expenses and financial commitments.
Most income protection policies will have a ‘waiting period’, which is the amount of time you need to be incapacitated for until you can claim a benefit. Waiting periods usually range from 30 days to 280 days – so this is an important aspect to consider.
Different ways to reduce cost of cover:
At a young age, insurance is relatively cheap. The premiums are not only low,but the amount of cover is substantial because you are many decades away from the contract end date, which is until the age 60 or 65. While, being at the age of 40 or 50 insurance starts to escalate in price, and it might become important to look for ways to reduce this cost.
- The premium for a 90-day waiting period can be often half the cost of a premium with a 30- or 60-day wait period. Therefore, if your income protection insurance is costing too much, increasing the wait period might be a good way of reducing the cost of cover.
- Having some cover is better than none at all, so another way to reduce the cost of insurance is by reducing the benefit amount. Insuring your full income, for example, is not always economical or appropriate. Therefore, some compromises need to be made in order to achieve a more sustainable cost of cover.
Our client has recovered and is now back at work. It was a tough period for them financially and the result would have been better if they had insurances in place. If you have any questions about income protection insurance or would like to know how to get income protection insurance, please feel free to contact John Kalachian on 02 9267 0108.