Your ability to earn an income is a valuable asset.
We tend to insure assets such as our houses, our cars, even our health. But have you considered insuring your ability to earn money?
The consequences of being unable to work for an extended period of time can be financially devastating and have far-reaching consequences.
Who needs income protection?
The simple answer is that if you're worried that you won't be able to pay your mortgage or rent, buy groceries, or pay for utilities should you become ill or suffer an injury, it's worth looking into income protection.
5 important reasons why income protection may be right for you
1. You'll still receive a regular monthly income
Income protection can cover up to 85% of your regular income in monthly instalments for the period you’re unable to work. It's a consistent source of income in the event that you're unable to work.
2. You're covered for accidents, injuries, or illnesses - no matter where they happen
While worker's compensation will cover you for work-related injuries or illnesses, income protection will cover you for any injury or illness that leaves you unable to work.
Break your ankle in a game of football? Undergoing cancer treatment? Need time off work to recover from surgery? Been made involuntarily redundant? Depending on your policy, income protection can cover that for you.
3. Claiming is easy
Making a claim on your income insurance is a relatively simple process. All you need to do is show that you're unable to work with medical reports and supply the requested information about your income.
4. Tax deductions, you say?
Another great benefit is that if you buy a standalone income protection insurance policy, the premiums may be tax deductible. However, if your income protection is built into your superannuation, this isn't generally available.
5. Peace of mind
Suffering an injury or trying to recover from an illness is challenging enough on its own, without having the added anxiety of wondering where your next mortgage payment is coming from or having to decide between food and necessary medication for the month.
With an income protection policy in place, you can relax in the knowledge that even if the worst happens, you don't need to do anything drastic like dig into your super, take out high-interest loans, or borrow money from your friends and family.
How much does income protection cost?
A lot of factors go into determining the cost of income protection insurance. Things like your age, your gender, and your lifestyle choices will all affect your premium, as will the type of occupation you work in. For example, manual labour jobs, where the risk of injury is higher, will generally have a higher premium than an office job that requires minimal physical activity. Smokers will incur higher premiums than non-smokers.
Other matters to take into account when tailoring your income protection insurance are the waiting period, the benefit period, and the actual percentage of your income that you get insured.
Opting for a longer waiting period (the amount of time between when your policy starts and when you can first claim income protection payments) can mean your premium is less, whereas a longer benefit period (the maximum amount of time your policy will cover your income) will increase your premium.
A maximum of 85% of your gross income can be covered, but if you choose a lower percentage that, too, will lower your premiums.
When considering income protection it's important to sit down and work out exactly how much of your income you need to cover your regular monthly costs. You'll likely want to take into account things such as:
- Your monthly mortgage or rent
- Your living expenses
- Your utility bills (gas, electricity, internet, phone)
- Any debt repayments (such as personal loans or credit cards)
- Any medical bills
It's worth speaking to an accountant or financial advisor to find the income protection policy that's right for you.
Help for your financial goals
At Profacc Accountants & Financial Planning, we help you identify and achieve the correct types and levels of insurance you'll need. Contact our friendly Perth-based team today.