The Beginner s Guide to Income Protection Are you thinking of protecting your income? Your Income Protection questions will be answered here! We have prepared a comprehensive guide for you with all the bits and pieces that are involved in understanding what Income Protection Insurance is and how it is different to other types of personal insurance. 1
Table of Contents Introduction 4 Chapter 1: What is Income Protection insurance? 7 But do I actually need it? 8 Are you suitable for income protection insurance? 9 Key consideration when comparing policies 10 Give your coverage an extra boost 10 Chapter 2: Why should I get Income Protection insurance? 10 Benefits of income protection insurance 11 Does income protection insurance provide coverage for redundancy? 12 Chapter 3: How does Income Protection work? 13 What factors will impact on how much I have to pay each month? 13 Understanding different premium payment structures 13 Agreed Value Policy vs Indemnity Value Policy 14 Carefully selecting the waiting period 16 Deciding on the benefit period 16 Determine the premium payment options 17 Which premium option should I choose? 18 Additional Options for Income Protection 18 Chapter 4: Other elements of Income Protection I should consider 20 Definitions of disability under income protection insurance 20 Different types of disability 20 Partial disability 21 Recurrent disability 22 If I have WorkCover, do I still really need Income Protection? 23 Changes to WorkCover 2012 23 2
I have pre- existing medical conditions: will they be covered under Income Protection? 26 Chapter 5: How is your Income Protection calculated? 28 How to calculate the right amount of cover for income protection insurance 28 Calculating your monthly expenses 28 Tips to help you decide on the right income protection insurance policy 29 Is Income Protection insurance tax- deductible and GST free? 30 Chapter 6: Added features to an Income Protection policy 31 Chapter 7: Income Protection through your Superannuation 34 Chapter 8: How much will Income Protection cost me? 36 Chapter 9: What if I have a specific occupation? 38 High risk vs low occupation 39 How to choose income protection insurance for your career 40 Chapter 10: How do I go with buying an Income Protection policy? 42 What I need to know about income protection 42 How to Buy the Best Income Protection 44 Chapter 11: Comparing Income Protection policies: Tips 45 What to look for from Income Protection quotes 46 Benefits in getting online Income Protection quotes 47 Frequently asked questions 48 Test your knowledge: Income Protection Quiz 50 3
Introduction With 83% of Australian's currently having insurance in place for their cars (AAMI, 2008), one would think that the same number of people would have considered to safeguard their most important asset - themselves and their ability to earn an income. Alarming research has shown that a mere 31% of Australians have income protection (TNS/IFSA, 2006) and of those, only 26% of families with dependent children are insured (Lifewise/NATSEM, 2010). So, what does this mean? For us, hard working people, not being able to work because of an injury or illness can only mean loss of income. Without this steady flow of income, many would experience great financial stress they try to cover bills, buy groceries, cover school fees and make rent or mortgage repayments. 4
An Underinsured Nation The statistics have shown that when it comes to insurance, Australians still very much have that 'you'll be 'right mate' sort of attitude. No one can predict the future and the best you can do for yourself and those you cherish, is to ensure you have the right level of protection in place. Lets consider the possible expenses that may be incurred if you were suddenly unable to work due to illness or injury; Possible Expenses that May Result from Illness or Injury Finances may be required to cover participation in a rehabilitation program or other expenses such as modifications to your home Your spouse or another family member may need to take time off work to care for you resulting in a reduction in their own income You may require the assistance of a registered full- time nurse while you recover You may have become disabled while overseas and require assistance to be transported back home If you are a self- employed business owner, you may require financial help to cover expenses so your business is not forced to close 5
Everyday Expenses Short Term Debt - Credit Card and Car Repayments Groceries Utilities Bills Education Fees Mortgage and Rent Repayments Still not sure? The Life Insurance Finder team are here to help you and we ll make sure that we inform you everything there is to know about Income Protection, and assist you in making the right decision to insure yourself with the right type of cover. But, firstly, let get you acquainted with what income protection is, its features and who are eligible to take advantage of this insurance in Chapter 1. 6
Chapter 1: What is Income Protection insurance? Income Protection insurance, to put it simply, is a type of personal insurance that provides a proportion of your income in the event that you are unable to work due to serious illness or injury. Most policies will provide a monthly benefit of up to 75% of your normal income. But Do I Actually Need It? To answer this question, consider how long you would be able to cover your day to day expenses if your source of income was suddenly removed. How long would you be able to dip into your savings before you can no longer afford to pay your bills, rent/mortgage or put food on the table for you and your family. Income protection provides peace of mind so you can enjoy your current way of life knowing your family will not be put under this strain. Key Benefits and Features of Income Protection Insurance So, in other words, making sure that your income is protected can give you the power to choose on how to live your daily lives. When your recovery, due to an illness or injury, has been prolonged for an indefinite time, it can put you and your family under an enormous pressure financially - trying to make ends meet, as well as, physically and emotionally - from all the stress. Being insured can take away all the worries of having to go through such hardship. Coverage for a range of illnesses Each provider will offer a list of medical conditions that they will pay a benefit for. 24/7 Coverage Most policies will provide coverage 24 hours a day, 7 days a week anywhere in the world. Waiver of Premium Premiums will generally be waived while the insured is on claim. Pays a portion of your income and extras Most income protection insurance policies will pay you around 75% of your regular income while you are off work with an illness or injury. This payment will also include superannuation contributions and any other benefits you receive. 7
Your choice of waiting period Depending on your situation and your current savings, you can choose the period between making a claim and receiving your first benefit payment. The longer the waiting period you choose, the lower your premiums will be, and you can often choose a period from two weeks, up to two years. Just remember that benefit payments are often paid monthly in arrears, so if you have a waiting period of 60 days, you will need to wait 60 days, plus another 30 days before you receive your first payment. Your choice of benefit period Again, the longer the benefit period you choose, the more expensive your premiums will be, but you don t want your income protection to run out before you are ready to re- commence your career. You can either choose a set period of two or five years for example, or until a certain age, such as 65, when your retirement funds will be accessible. Choose and agreed or indemnity benefit You can choose an agreed benefit amount when you take out income protection, so that the full benefit amount will be paid when you make an eligible claim, regardless of your actual income at the time you make the claim. An indemnity benefit is based on your income at the time of the claim and will require financial checks to be made before your benefit can be paid. An indemnity policy often has cheaper premiums, but is usually only ideal if your income increases regularly each year, for example if you are self employed, because otherwise you could risk a lower benefit payout. Are you suitable for an income protection insurance? Read through the checklist below to find out if you are eligible for Income Protection Insurance; You have to be... 18 to 64 years old An Australian citizen or a holder of an Australian Permanent Visa Working and residing in Australia upon application Working on at least 20 hours per week Holding the same position for at least 12 months Criteria for successfully receiving cover may differ from provider to provider. While you may not receive coverage from one provider, there may be others on the market that are willing to provide you with the appropriate cover. 8
Key Considerations When Comparing Policies There are two crucial elements of Income Protection to consider when looking to take out a policy: 1 The length of time you would like to be covered for. 2 The amount of cover that will meet your day- to- day or monthly expenses. In addition to these two factors, it is essential to gain a clear understanding of what built- in features and additional options are available on the policy. Find out what is necessary for your current needs so you can find the best policy at the right price. Give Your Coverage an Extra Boost! The most common level of cover that income protection insurance can provide is a benefit pay of 75% from your income, shall you have to cease work due to an unforeseen illness or accident. There are a number of insurers that will allow extra coverage up to 15%, from the 75% maximum - however, it is important to note that the additional amount must be used as superannuation contribution. As an example, if your coverage entitles you a payment of up to 80% of your monthly income - you will receive the 75% and the remaining 5% will be paid into your super fund. You can then select the length of time you would like the benefits to paid - which can span from 2 years up to 65 years of age. What is even better about being insured with an income protection policy, is that the premiums you pay are tax- deductible! So, you are not only protecting yourself and your family at times of the unknown, but you also get to save some money during tax time! The Australian Government is working hard with insurance providers to make sure that insurance is more accessible to everyone - think about the statistics from TNS and IFSA (2006) which showed that only 31% of Australians are insured with an income protection policy! There is no better time than now to protect yourself and your family and consider income protection as part of your personal insurance portfolio. With so many competitive options on the Australian market, it is essential to take the time to consider your own needs and compare as many relevant products as possible so you can receive the right level of protection into the future. Now you have a firm grasp of what Income Protection Insurance actually is, let s take a closer look at some of the benefits of taking out income cover. 9
Chapter 2: Why should I get an Income Protection insurance? Economic instability in the past decade has shown the financial stress many face when their main source of income is taken away. Being unable to provide for yourself, let alone your financial dependents in the event of serious illness or injury can have truly devastating impacts. While it may not be a complete replacement of your income, the 75% proportion of your salary provided in monthly benefits goes an extremely long way in keeping food in your table and the mortgage repayments at bay. Benefits of income protection insurance Income protection insurance protects you from the unknown. Nobody knows when they may suffer a serious injury or illness. Obviously the occupation and lifestyle of some pay place them in riskier situations than others but the fact remains that accidents and illness can happen to anyone and without warning. 10
The benefits of having an Income Protection insurance As you can see from the diagram above, income protection insurance has significant benefits on how it can maintain your quality of life, especially at unexpected times when you are rendered with a disability and you will have to take time off work for recovery. In addition, income replacement insurance also has additional features which are designed to further assist you to 11
transition smoothly when you return to work - which covers your costs for rehabilitation, re- training, adjustments and modifications incurred by the disability. Does income protection insurance provide coverage for redundancy? There are many income protection policies that offer features that provide benefit payments for a set period if the policyholder finds themselves involuntarily unemployed. Policyholders will often have to provide evidence that they have attempted to seek new employment. Premium Waiver for Involuntary Unemployment Many policies will also enable policyholders to waive premiums payable for a set period if they find themselves involuntarily unemployed for a set period. Other instances in which premiums can be waived include; Unable to work due to your role as a caregiver for somebody Sabbatical Maternity leave Paternity leave The next chapter will delve a little deeper into the components contained within an income protection policy, which are essential as they can be tailored specifically to your needs and personal circumstances. By the end of it, you should be well on your way in figuring out the inner workings of income protection! The next chapter will delve a little deeper into the components contained within an income protection policy, which are essential as they can be tailored specifically to your needs and personal circumstances. By the end of it, you should be well on your way in figuring out the inner workings of income protection! 12
Chapter 3: How does Income Protection work? Nobody is the same. Whether it be spending health, occupation, hobbies or lifestyle, each of us carry different characteristics that determine the level of risk that we carry. This risk will determine how people are assessed by insurance different insurance providers which will then be reflected in the premium that they will pay. What Factors Will Impact On How Much I Have to Pay Each Month? Age: The older you are, the more risks you are perceived to carry Gender: Women pay higher premiums than men, because women are considered to be more likely to make a claim and require more time for recovery Current health condition Pre- existing medical conditions Occupation: High risks occupation such a manual and construction worker will pay more premiums than those who work in an office Lifestyle choices: Whether you are a smoker and/or have regular drinking habits, your premium will be higher due to the increased risks of claim Understanding Different Premium Payment Structures As different individuals will have different circumstances that make them unique, the same goes with insurance providers. These companies will have their own prices for their product lines and each product may suit one, but may not for another - which is why there is no such thing as a fixed policy across the board for any insurance. When you are starting to look for quotes on income protection insurance, you will find out that there are two different policy types, which are indemnity value policy and agreed value policy. Indemnity value policy, in very simple terms, means the benefits you receive will depend upon the financial evidence (which is your wage earnings) that you present at the time of a claim. On the other hand, agreed value policy s benefit payment will be based upon a specific percentage of your current income at the time of application with the maximum of 75%. One policy price may be suitable for one situation and not for the other, therefore it is crucial that assess the different covers against your current situation to determine which one will be most suitable to you. 13
Agreed Value Policy vs Indemnity Value Policy Agreed Value Policy Under this type of income insurance policy, you have to prove your income when you sign up Your policy is using your income at the time you applied for the policy The premiums you will have to pay under this type is much higher up to 20% than the indemnity value You are sure how much you will receive regardless of the changes in your income PROS The monthly benefit you receive is agreed upon the time of your application and will not change regardless of the change in your income when you file a claim Most suited to people whose income is more likely to fluctuate or change along the way - benefit amount will stay the same even if your income is reduced in the future Good for those who have their own business or are self- employed, or for women are in the process of planning a family - as taking maternity leave and unpaid leave may cause a decrease in income when and if they go back to work Indemnity Value Policy The payment of your benefit under this policy is based on the salary you declared upon enrolment Your policy is assessed when you file a claim Indemnity value income protection is cheaper than agreed value The amount of benefit paid to you will be the lesser of 75 percent of your pre- disability income, or the monthly amount insured* shown in the policy. *Income earned over the last 12 months, or the best 12 months over a specific period of time (definition may vary from one provider to the other) PROS The indemnity value protection program leans towards being slightly cheaper, if price is an important factor to you More suited for regularly employed individuals whose salaries are consistently stable and changes are usually kept to a minimum 14
The quick process can help reduce the stress when filing for a claim - you don t need to provide financial evidence. CONS You will need to present proof of your income when you apply, for verification More expensive in price CONS Financial checks are required and necessary when you make a claim If you have recently earned less before the start of the policy - it could reduce the amount of the payable benefit The insured will assume the risk of changes in their income Carefully selecting the waiting period Besides choosing the right policy cover for you, another important element to decide on is the waiting period. Waiting period is the amount of time you are willing to wait, from the time you are unable to work and earn your income due to an illness or accident, until the time your benefit payment will begin. There are a number of days or periods that you can choose: 14 days 30 days 60 days 90 days 1 year 2 years To decide which period will be most suitable to you, consider whether you have enough financially to cover your monthly expenses for the duration, or if you receive a paid sick leave from your employer, think about whether it will provide an assistance to your financial situation, thus allowing you to wait a little bit longer for the benefit payment. In general, the longer the waiting period, the more you will save in paying your insurance cost as it will result in a lower income protection price. It is important to note that the benefits are usually paid to you in arrears from when the waiting period ends. For example, if the waiting period you have selected is 30 days: 15
Waiting Period What Happens? Day 1 Day 30 Day 60 The commencement of the disability or illness, that causes you to cease work temporarily, with attention from medical practitioner. Waiting period ends. First benefit payment commences. Deciding on the benefit period The other element of a policy that you need to select will be the benefit period. A benefit period, or deferment period, is the maximum length of time that you would like your benefits payments to last. It will start at the end of your waiting period and continues for the period you have agreed on for the policy, as long as you continue to be ill, or partially or totally disabled. The most common benefit periods are 2 years, 5 years, or up to the age of 65. Some policies also offer additional benefits of which you will be able to extend the length of time you are covered from 65 to 70 years old. In order to decide how long you would like to be covered for, you have to think about how long you can survive, relying solely on your saving in the event you are not able to generate an income and take into consideration your financial commitments such as debts and loan repayments that still need to be made despite of the cease of your earnings. This will also then influence the price of your policy. Whilst it is best to opt for a longer period of cover, since you will not be able to predict the amount of time you shall be hindered by an illness or injury, you also need to think whether you will be able afford the premium accordingly to your budget, as a longer cover is generally much more expensive. The following table illustrates the benefit periods currently available for income protection policies in Australia: Benefit Period Maximum Age for Policy Renewal 2 years 65 5 years 65 to age 60 60 16
to age 65 65 to age 70 65 Lifetime 65 Determine the premium payment options There are a few options you can choose from for paying your premium. The most common options are stepped premium and level premium, though hybrid premium is gaining popularity more and more these days. Stepped premiums Stepped premiums are linked to your age, which means that your premium is calculated based on your age, which will increase accordingly over the term of the policy. As it is based on your age, you will pay a cheaper premium initially, though it will gradually increase over time when the policy is renewed in line with your age. The reason why you pay much less on premium at the beginning with this option is because as you age, the mortality risk will also increase. Mortality risk is the likely risk of a particular person to die at a certain age - which is reflected in the increase of the premium every year as you age. Level premiums Level premiums mean that the premium will remain constant over the term of the policy, as it is set at the beginning. You may be paying a much higher premium initially when you start your policy, but it ll remain the same throughout as your age and mortality risk have no effect on your premium whatsoever. However, there a limitation on this type of payment - you can only opt for level premium until you are 65 years of age. Hybrid premiums Hybrid premiums combine the best out of both stepped and level premiums. You will initially pay an increasing premium rate, but after 10 years, you will be able to switch automatically to a fixed/level premium rate, which will remain the same until you turn 60 years of age. Therefore, hybrid or blended premiums can be considered to offer the best out of both worlds - a cheaper 17
premium rate to pay at the beginning (compared to a level premium), but also remain cheaper than a stepped premium. Which premium option should I choose? To determine which option of premium payment that is more suitable for you, think about other factors beside the price - such as how able are you to sustain the premium payments on a long- term basis. Here are some tips on deciding which one of the different premium payment options is the most suitable one for you: Stepped premiums are suitable for those who are considering life insurance that would cover a short- term loan Level premiums are more catered for those who are able to pay a higher initial costs as they are looking for a long- term protection Hybrid or blended premiums will be able to accommodate those who are looking for a lower initial premium payments, but are very interested in making a long- term investment. Additional Options for Income Protection There are a number of ways in which you can finance your income protection insurance, which can be found from the following: Individual Funded Income Protection Insurance As the name suggests, this form of income protection will be paid out of your own pocket. If you decide to fund this insurance on your own, you will need develop a strategic plan on how to make payments accordingly to your budget or cash flow. Superannuation Funded Income Protection Insurance This form of income protection will be accessed through your superannuation fund. If you have your income protection insurance through the super fund, it is generally much cheaper in terms of cost and it is also tax effective. If you decide to take out the insurance from your super, you need to consider how it will affect your retirement savings. A more detailed information on income protection through your Superannuation will be covered on Chapter 7. Company Funded Income Protection Insurance This type of income protection is set up by companies/organisations for their employees - therefore, the company pays for it. 18
Whichever way you decide on how to finance your income protection policy, it is up to your discretion and depending on your current financial situations. Make sure that you understand the differences of benefits from each style of income protection policy, its advantages and disadvantages to determine which will best suit your needs. The previous chapters of this guide have explained what income protection insurance is, the benefits it can provide you, and essential components of a policy which directly affect the level of premium you pay. The following chapter will also discuss additional factors that influence the premium level, and most importantly the definitions of disability that can have an impact to your benefits. 19
Chapter 4: Other elements of Income Protection I should consider With so many different income protection policies in the current market, it is critical to find the one with the necessary features and benefits to provide the right level of protection for your current situation. The Product Disclosure Statement (PDS) can inform you of what is and isn t included to help you decide if this is the right option. Definitions of disability under income protection insurance Disabilities can come in forms of either total or partial, and temporary or permanent. As the definition of total and permanent disability varies from one insurer to the other, definitions of total and partial disability vary between providers, so it is essential you clearly understand when a benefit will and will not be paid. Since there are differences on how disabilities are defined under an income protection insurance contract, it is essential that you understand what they are as it will assist you in deciding which type of income protection you may need before you sign the contract. Under an income protection cover, a total disability has the characteristics from the following (in most definitions): An event such as an illness or accident Inability to work caused by the sickness or accident A subsequent decrease in income due to the illness or injury. A total disability is defined to describe the results of an event, which again, will vary amongst different insurance providers. The three types of definitions that are available in Australia currently are as the following: Different Types of Disability Duties based disability Income based definition Hours based disability This is classed as when you are unable to perform one or more important duties in your role at work because of Is when you have suffered a reduction in your income because of an accident or sickness. Means you are unable to perform your work duties for a certain number of hours per week, for example 20
illness or injury - duties could include manual work, supervision, desk work, meeting with clients or presentations. 10 hours per week, because of sickness or an accident. Own occupation definition under an income protection policy will also have variations, such as: Not able to perform at least one of the important duties of their regular occupation Not able to perform the important or essential duties Not able to perform each and every duty. Partial Disability Income protection provides coverage not only total disability from a sickness or accident, but also partial disability. Partial disability means that a person is able to work part time or in another occupation and is not totally disabled. It is important to note that the partial disability definition in income protection policies will vary between insurance companies and is usually dependent upon your income and work situation at the time of claim. For a claim to be paid under partial disability, you must be totally disabled for at least the minimum waiting period before you receive a payment. During this period, you will also need to be under the advice of a medical professional, which will then confirm your condition to be either total or partial. Once confirmed, you will no longer be paid a full benefit and instead your policy will be calculated using a certain formula or criteria to determine the partial disability benefit. 21
The criteria of your partial disability benefit payment will vary accordingly to the three class definitions of disability: Duties based definition Since this definition is based upon whether or not you are able to perform the normal and essential tasks at work, the partial disability benefit payment will be calculated based upon a formula: [(Pre- disability income current income)/pre- disability income] x Monthly benefit This works best for employees that get paid a monthly salary Income based definition Regardless of how many hours you work or how many normal tasks and duties you can perform, if you are still affected by a sickness or injury and experiencing a decrease on your income, then you are entitled to a benefit payment. In some circumstances, when you are earning up to 20% of your pre- disability income, certain insurance providers will continue to provide a full benefit payment. Hours based definition Under hours based definition, the criteria is based upon the number of hours you spend at work. Some insurers provide what is called a "10- hours clause" in their income protection policies, which will allow you to return to work for up to 10 hours and still able to receive a full total disability benefit payment. This works best for self employed individuals that may have inconsistent earnings, in which income may received prior to the disability. Recurrent Disability If you suffered a relapse/recurrence of the same illness or injury for which you have been receiving benefit payments, when you claim consecutively, your waiting period may be waived. It is essential to note that the recurrent disability has to occur within 6 months of the original disability for you to be able to take advantage on the waiver. Beyond this period, the waiting and benefit period will begin at default. 22
If I have WorkCover, do I still really need Income Protection? WorkCover is an Australian initiative implemented nationwide which provides compensation for workers who are injured during the course of their employment - all employers are to guarantee the safety of their employees and are required to pay a premium to the government to support this scheme. When an injury occurs to one of the employees, the employer can make a claim and WorkCover will then exonerate a compensation payment and other benefits - but only if the injury occurs whilst at work. All Australian employees have coverage access to WorkCover, but that doesn t mean there is no need for income protection insurance. WorkCover should be treated as a minimum insurance cover, as the potential benefits are not always guaranteed. Benefits provided under WorkCover: Coverage for accidents and injuries which occur at work Provision of a lump sum payment (for permanent impairment) or regular weekly repayments, with the power to withhold payments until the level of your disability is determined Assistance with the payments of medical bills Arrangement of legal assistance with the pursue and event of a claim Aid with intensive rehabilitation It is important to note that even with all the benefits of WorkCover, it does have some limitations: To be eligible for compensation, you will need to prove negligence from the employer s part If your injury did not occur at the workplace, you will not qualify for a compensation The benefits may not provide the swift payment needed to cover essential everyday expenses. Changes to WorkCover in 2012 In June 2012, the State Government announced significant changes to WorkCover legislation in Australia, which affect all workers that rely on this scheme to provide them with financial assistance whilst they are recovering from an injury. Some of these changes have already been enforced, with the remaining to be rolled out over the next 12-18 months. The following occupations will be excluded from the new legislation changes: 23
Workers making a claim on dust related diseases Surf lifesavers Rural fire service volunteers Firefighters Volunteer bush firefighters Emergency services volunteers Paramedics Coal mining claims Police officers. WorkCover Changes Affecting NSW Workers As of October 2012, new claims will be managed under the new legislative requirements and all workers in NSW will be affected by the following changes: Areas that are affected by new WorkCover legislation Weekly incapacity benefit payments Payment of medical benefits Changes in benefit If you have been totally incapacitated and unable to work, the weekly benefit you will now receive is 95% of your average weekly earnings - that is only applicable for the first 13 weeks Between 14 to 130 weeks, benefit payments will be reduced to 80% of your average weekly earnings After 130 weeks, if you have some capacity to work, the weekly benefit payments will cease if you are working less than 15 hours per week and earning at least $155. Medical and treatment related payment benefits will cease; 12 months after the claim first made, or 12 months after the final payment of weekly benefits is made 24
Note: If you sustain an impairment of over 30%, your medical benefits will continue. Journey claims Nervous shock claims Claims for stroke and heart attacks Return to work for employers and injured workers Claims are only payable if you can prove that there is a real and substantial connection between the employment and the accident out of which the personal injury arose. Benefits will no longer be payable for nervous shock claims you have been injured or by family members if you are deceased. Injuries related to strokes and heart attacks will not be covered unless your place of employment has contributed to a significantly greater risk of these conditions to occur. The same applies for other diseases. Workers, with some capacity to work, now have the obligations to make all necessary arrangements to return to work. Both employers and injured workers must work together to achieve the best return- to- work results. Injured employees can request for their employers to provide them with a suitable employment role to cater to their condition. Employers must comply, as long as it is practicable. They can be subjected to a fine of up to AU$11,000 for non- compliance. Injured workers that fail to make any reasonable effort to arrange their return to work, will have their weekly benefits payments suspended, or in some extreme cases, terminated. 25
It is important to remember that if you have fallen ill from a condition that is not a direct result of your employment or have suffered an injury outside of work, you will not be eligible for WorkCover compensation. Taking this into consideration and all the changes that are happening to the legislation, income protection insurance can provide the right level of coverage to keep you protected both in and outside of the workplace. I have pre- existing medical conditions: will they be covered under Income Protection? People with pre- existing medical conditions can still receive income protection. Whether you have a medical condition that occurred a long time ago, or just recently, it is important to be honest to your insurer regarding your condition. This will not only your application, the level of premium you pay, but also the success of your claim. Your insurer has the right to deny your claim if you have failed to disclose your medical condition. When in doubt, it is best to consult an insurance expert to discuss your situation before you apply. They can help you find the right policy with inclusions to suit your situation. Carefully read the Product Disclosure Statement as well, as there may be some exclusions that apply and varies between insurance providers. Pre- existing medical conditions can include the following: Diabetes Hepatitis HIV- positive Cancer (whether you have been free for years or in remission) Cardiovascular diseases Joint/musculoskeletal disorders Sleep apnoea/sleep apnea Skin lesions Epilepsy Visual impairment Asthma Mental illness, which includes (but are not limited to): Stress (including post traumatic stress) Physical symptoms of a psychiatric illness Anxiety Depression (eg. postnatal depression) 26
Bipolar disorders Disorders related to substance abuse and dependency which includes alcohol, drugs, or chemical dependency Other specific medical conditions 27
Chapter 5: How is your Income Protection calculated? As explained from the previous chapters, you now know that your income protection policy can be tailored specifically to suit your needs. The question is - how do you know how much income protection cover is enough? Having the right amount of cover is absolutely essential to ensure that you can meet all your monthly payments, without needing to pay a fortune on your premiums. How to calculate the right amount of cover for income protection insurance An income protection calculator can help you determine how much cover you should take out. Using the information of your annual income, the calculator will then suggest you an amount for coverage you should have per month. Income protection insurance can provide coverage for up to 75% of your monthly income, so usually income protection calculators will suggest an amount that is calculated based on: [Your income p.a./12 months] x 75% = Suggested income protection cover Life Insurance Finder provides an income protection calculator tool for you to use and you can find it here: www.lifeinsurancefinder.com.au/post/life-insurance-calculators/income-protectioninsurance-calculator/ Calculating your monthly expenses Another approach is to think of all the expenses your household incur on a monthly basis. Take out the amount you usually spend every month for entertainment, leisure shopping and luxuries, and get down to the bare necessities. The following example shows some of the expenses that are incurred monthly by a general Australian household: 28
Mortgage payments/rent Monthly education fees - including books, uniform, transport, etc. Car repayments Credit card repayments Loan repayments Household running costs Monthly grocery shopping expenses Utilities bills Medical bills Monthly super contribution or savings amount Investment loan interest Total monthly expenses = Suggested monthly income protection amount The reason why you should consider your monthly expenses is because if this amount is much lower than your estimated monthly benefit, you have the option to reduce your level of cover and you also get to save some money on the premiums. t is important to remember that income insurance calculators may differ from provider to provider and are to be used as an estimate for the amount of cover to take out. Here are some tips to keep in mind to get some fair balance from an income protection insurance calculator: Tips to help you decide on the right income protection insurance policy Once you figure out the the amount of coverage you need, the next question is how you can determine the income protection policy is suitable for you. Here are a few simple tips to help you feel more confident in choosing a policy: Choose the benefit period that you think will be sufficient to cover a period of disability This decision is important because it can lead to great differences in premium costs. Whilst it may be difficult to determine exactly how long you will need coverage for, you should at least consider a longer benefit period to cover the 29
possibility of a long term disability in the future. Decide on a percentage of your income to be replaced that will be enough for you when you recover Make sure you read the fine print Income replacement benefits are usually set to a maximum of 75% to give the policyholder incentive to return to work. Benefit payments should cover the basic necessities and relieve financial strain. Once you have decided on a policy, don't forget to review all the features and exclusions that are included in the plan. Failing to check the fine details can affect the success of your claim. If you have any concern regarding possible scenarios in the future, ask questions to the insurer if these will be covered in your policy or not. Is Income Protection insurance tax- deductible and GST free? Yes, income protection insurance premiums are usually tax- deductible and the benefits are normally paid on a monthly basis for the duration of the illness, in preference of paying any proceeds as a lump sum payment. Income protection insurance premiums also do not attract GST, unlike health insurance and other general insurance. However, it is important to note that your income protection monthly benefit payments are not tax- deductible. These benefits will be considered as part of your personal taxable income for the financial year, similar to a normal income. If you have a specific concern regarding taxation on your income protection policy, it is best to confirm with your accountant or financial advisor. 30
Chapter 6: Added features to an Income Protection policy Premium payments can vary greatly between policies depending on the built- in benefits and additional options on offer. It is essential to have a clear understanding of what each of these options can provide you and if they reflect your current and future needs. A comprehensive policy will offer more added benefits and depending on what you require, consider whether you need the following to pay extra for: Features that available as added benefits: 31
Specified injury and illness benefits This feature will pay a benefit if you suffer from one of the specific injuries listed in the policy, even if you continue with your work. These may include broken bones, cancer, a stroke or heart attack Elective surgery Is coverage for injuries which are caused by elective or cosmetic surgery Bed confinement Will waive the waiting period and pay benefits immediately if you are confined to a hospital bed Accommodation and travel assistance Will pay for accommodation and travel for family members who need to visit you if you are sick or injured away from home. This may include relocation assistance to pay for airfares for you are disabled while overseas Family care Will pay family income assistance if you require another family member to take care of you Home care Will pay for the assistance of a full time carer if required No claim bonus Will increase your benefit amount at no cost to you if you have held the policy for a certain amount of time without making a claim Rehabilitation incentive Will help to pay for the costs of rehabilitation care Guaranteed future insurability Will guarantee to increase your benefit amount if your salary package increases Increasing claims benefit Will ensure that your benefit amount increases each year in line with the CPI, once a claim has commenced. This is especially important in income protection policies with a long benefit period, such as until retirement, so that your benefit amounts are able to continue to meet your family s financial needs as inflation increases 32
Day one accident cover Will waive the waiting period if your disability is the result of an accident. In addition to the features and benefits listed above, income protection insurance can be bundled with other types of insurance such as life cover and total and permanent disability (TPD). When your policy is linked with life cover or TPD - in the event of your death, your dependants will receive a multiple of your monthly insured income or if you are totally and permanently disabled, you will be paid a lump sum benefit instead. Remember that this feature will also vary between insurance providers. As previously discussed, you also have the option to obtain income protection insurance through your super funds, instead of paying the premiums out of your own pocket and the next chapter will explain the benefits and limitations of doing so. 33
Chapter 7: Income Protection through your Superannuation Australians have the option to obtain income protection insurance through their superannuation fund. Income protection insurance through superannuation fund is generally cheaper and can provide some tax benefits. Also known as salary continuance insurance, this type of income protection usually comes with a default level of cover, though you have the option to increase shall you need a more extensive coverage. Income protection policies through superannuation are generally indemnity value based, which means that when you claim, the benefits will be determined by your income at the of application. While income protection insurance through superannuation may seem more affordable, there are some limitations to this type of cover that buyers should be aware of. Limitations of having your Income Protection through Superannuation Complex claims process Limited duration of cover Limited amount of cover Funding from your retirement savings When making a claim, you must prove legitimacy of claim to both the insurance provider and trustee of the super fund. Once you have met the conditions of release, the insurer will pay the benefits to the trustee. Then you will receive the benefits from the trustee. Some superannuation income protection policies will only provide benefits for a period of two years, which is not ideal if you are suffering from a long- term disability. Superannuation income protection policy does not take into consideration each person s specific needs and will only be able to provide a limited range of options. The super you have accumulated to put towards your retirement will be used to pay your income protection insurance premiums. While it may seem more fitting to 34
not pay for the cover out of your own income at present, it is important to remember that the money you have to fund your retirement is slowly decreasing and you may not have enough when the time comes around. Benefits of having Income Protection through your Super Income insurance is cheaper through super Automatic acceptance Unrestricted occupations Cost effective premium payments When your super fund protects you with income insurance, it is doing so through a group policy. Because it is accessed through wholesale rates, the insurance is cheaper because you are not assessed on your individual circumstances and risk factors. As a group policy, you are not required to take a medical exam. Even if you are a smoker you will pay the same rate as a non- smoker. Under automatic acceptance you can be insured for as much as $20,000 a month. There is no restriction on occupations with group cover through your superannuation. If your occupation is considered special risk you will still be able to receive cover. When you pay for your income insurance through your super you are doing so with your contributions, which have been taxed at the super contribution rate of 15%. However, if you take out a separate policy and pay for the premiums with your post tax earnings, you may be imposed a tax rate as high as 45%. It is essential that every effort is taken to find a policy that gives you the right level of protection at the right price. Whilst income protection through your super may be less complicated avenue, you still need coverage that is well suited to your needs and personal situation. 35
Chapter 8: How much will Income Protection cost me? Now that you have reached this part of the guide, you would probably have a better idea on what income protection is and understanding the different aspect that is involved in deciding on a policy. But, a question that you still may have is probably related to how insurance providers determine the cost of an income protection policy (which has been touched briefly in Chapter 3). In this chapter, the guidelines that insurance providers follow to determine the cost of your policy, will be explained in more detail. It is important to remember that some of these factors will be used by your insurer to determine the level of risk you carry, which will then be translated into a premium amount. Factors that determine the cost of Income Protection Cover OCCUPATION AGE GENDER WHETHER OR NOT YOU SMOKE ALCOHOL CONSUMPTION The type of occupation you have will greatly affect the amount of the premium you are going to pay. The higher the risks your job has, the higher the premium is. The older you are, the higher your premiums will be. This is due to the higher assumption of risk as you age - as you get older, you will be more prone certain disease and the time you take to recover will be longer. Women will generally have to pay higher premium as they are considered to have a higher rate of claim and require longer periods of recovery. If you are a smoker, it is likely that you will be paying higher premiums compared to those who do not. This is because you have a high risk of being exposed to smoking- related diseases in the future, such as heart disease and lung cancer. Your average consumption of alcohol can have an affect on the level of premium you pay. The more you drink on a regular 36
basis, the higher your premiums will be. PURSUITS AND PASTIMES CURRENT HEALTH AND PRE- EXISTING MEDICAL CONDITION THE WAITING PERIOD THE BENEFIT PERIOD If you are involved in high- risk activities such as extreme sports, your insurance provider will charge a higher premium as you are perceived to carry a higher risk. Your health is one of the most important factors that determine your premiums. If you are generally healthy, you will pay cheaper premiums compared to people who have poor health and have habits of smoking and drinking. If you have a pre- existing medical condition, your insurer may increase your premiums or place an exclusion on your policy. When deciding on a waiting period, it is essential to assess your financial situation and whether you have enough funds or sick leave pay to support you until your benefit payment starts. If you select a longer waiting period, your premiums will be cheaper. While you may now be aware of the different factors that determine how you will be assessed by an insurance provider, the overall cost of your premiums will also be based on the actual policy you choose and it's benefits and features. While you may now be aware of the different factors that determine how you will be assessed by an insurance provider, the overall cost of your premiums will also be based on the actual policy you choose and it's benefits and features. 37
Chapter 9: What if I have a specific occupation? The occupation and type of career that you choose will affect how you live your life and create a lifestyle that is your own - from the home you buy, the car you drive, the clothes you wear and the friends you have. Therefore, it is important to summon into mind that the lifestyle you and your family have, including the continuance of such condition, is relying upon your ability to carry out your role as the provider. This is when having income protection insurance is absolutely essential - it does not only protect your ability to earn an income in your career, but 38
it can also provide sustenance to your way of living and the people you love. In saying so, your chosen career can also affect the type of income protection insurance you should decide on. There are vital questions on your personal situation that everyone should answer especially when you are thinking of buying an income protection insurance: Do you have children? If you do, how many? How old are they? Are you thinking of sending your children to a private school? Will you be paying all of their university fees? Is your partner working? If yes, what is his/her earning capacity? What is the size of your mortgage? What is current debt levels? Whilst all of the above are the key things you need to consider when taking out a policy, most importantly, the way you are earning your income will affect which type of income protection insurance you choose, including the variables and extras you may select for a more comprehensive policy. For example, in previous years, the Australian insurance industry placed a limitation on how much a high income earner could insure his income - which was maximum $30,000 per month and that amount would only protect those who earned up to $560,000 a year. This had an effect on high income earners who are considering to protect their income, but with the restrictions, they were not able to insure themselves with the level of income they are used to earning. However, as the cost of living significantly increases and wages paid need to somehow keep with that trend, a number of insurers are now having a provision for income protection benefits of up to $60,000 per month. This will provide a benefit to to white collar professionals such as surgeons, doctors, dentists, lawyers and barristers that are eligible for this new maximum income protection benefit amount. There will some additional financial requirements that need to be met on your application for the maximum income protection benefit, so it essential that you keep your focus on insurance providers that specialise in protection for high income earners. High risk vs low risk occupation In addition to how a disability is defined and how it can impact your benefit payments, there is another important factor that has a direct relation with the nature of work that you do. The level of risk you carry with your occupation will determine the level of coverage your income protection policy can provide. Occupation related risks are separated into two categories: 39
Standard risk Under this category, your occupation; Does not require you to engage in tasks that are physically, mentally, or emotionally demanding Does not expose you to work environments that are potentially dangerous and hazardous Special risk Under this category, your occupation; Requires you to complete tasks that can be strenuous to your physical, mental or emotional state on a daily basis May expose you to chemicals that are hazardous to your health May put you at risk of possible occupational diseases Is affecting your morale due to the continuous exposure to risk, which can lead to unhealthy lifestyle habits, such as excessive drinking. The risk category of your occupation will affect the maximum benefit amount you receive. The maximum benefit amount will vary between providers, so it is essential for you to compare different policies before you decide. To demonstrate, an Australian insurance provider, OnePath, has set the following maximum coverage amount for both standard risk and special risk in their income protection plans: Standard risk occupation cover Under this category, you can be covered up to $10,000 Special risk occupation cover Under this category, you will be covered for a maximum of $3,000 How to choose income protection insurance for your career To help you decide on the right income protection policy that is most suitable to your specific needs and career, here are some tips that you can follow: Apply when you re young. With most types of insurance, risk is associated with your age - which is why the premiums you pay will increase as you age, because of the increasing risk of an illness or injury to occur. Your level risk will be assessed at the time of application, so the younger you are, the lower the risk, which means you pay much less at the beginning. Also, if there are any changes to your health, 40
your career, or your lifestyle over the term of your policy, it will not affect your coverage, unless there is a special exclusion on your contract. Be very honest. Make sure that you are forthright with factors in your lifestyle that may be considered risky or you medical or family history, as failure to provide them with correct and important information may result in your policy being void and you will not be able to claim for a benefit payment. If you disclose truthfully to your insurance provider about a pre- existing medical condition or family history, the provider will able to inform whether you will be covered, and to what extent, if there is any inclusion or exclusion. This way, if it happens that the policy is not quite what you re looking for, you still have the opportunity to look around and make other arrangements when necessary. If you provide relevant and accurate information to your insurer, it will reflect on your insurance package and you will be paying the right amount of premiums too. Choose premiums that are affordable throughout your career. Stepped premiums are affordable when you are young, as it starts off quite low. However, since it increases with age, the premiums may become quite expensive once you reach a certain age. Level premiums, on the other hand, stay the same throughout your career - even though you may have to pay a high premium at the beginning, but it will work out cheaper when you reach your 50s, compared to someone with a stepped premium. The other option you can go for is a blended premium, in which you will be paying increasing premium rate for the first 10 years, and then it ll revert back to a fixed rate. Life Insurance Finder provides articles for you to read shall you require specific information related to your occupation. Just click on the occupation and it ll take you to the page you need: 41
Chapter 10: How do I go with buying an Income Protection policy? You might be asking whether or not it is worth buying income protection insurance. The answer lies in your needs and financial situation. If you are someone who has no access to state benefits or alternative funds, then you should consider income protection. Income protection insurance, like other life insurance policies, is designed to give you an alternative or supplementary source of income if and when you become unable to work because of an illness, injury, or redundancy. Income protection pays you out 75% of your gross monthly income until such time that you are ready to re- enter the workforce. However, in some cases where the insured has lost all the ability to work again, the policy will continue a benefit until 65 years old. As much as income protection is a must have, buying the right income protection policy for you can prove to be very challenging. With all the income protection policies and their flashy features, all the information could confuse you. So how do you get the right policy? By comparing quotes and premiums, you would have an idea what is it that really fits your needs and budget. It also helps to be in the know what factors affect how your premiums are calculated so you could prepare when you subject yourself to an assessment. What I Need to Know About Income Protection Income Protection insurance is perhaps one of the most underrated and unused insurance policies in the market. Many people would never hesitate having car or home insurance, but would think twice about protecting their income. The logic of this might be is you cannot see the benefit of the policy at present, unlike car and home which is very visible. If you are still questioning the idea whether or not it is a good idea to get income protection, consider asking the following question: If you have suddenly found yourself out of work for an indefinite period of time because of an illness or injury, would you have an alternative fund to sustain you on a monthly basis? 42
If your reality is a limited savings that has a possibility to get drained in a few months and relying on state benefits can be foreseen, then you d better get income protection some careful consideration. When shopping around for income protection, be sure to watch out for the following factors, which could be quite tricky if unnoticed. Definition of Incapacity: Each policy from various providers may have different definitions what disability or incapacity means. Be sure to ask in order to save you trouble in the future. Cost: If you don t shop around, you could miss out on a lot of deals. Non- permanent contract and introductory periods: Be sure that you have covered all the basics, the features, and the limitations. Over insuring: Check what is included in the policy and remove unnecessary features. You could have a lot of discounts from it. 43
How to Buy the Best Income Protection 44
Chapter 11: Comparing Income Protection policies: Tips Having the right income protection policy for you means that you are protected accordingly to the way you need it and to paying the right amount as you require. Therefore, there a few key things to ask to your insurer when comparing different policies that are available out there, such as: What is and isn t covered? Is it suitable for your occupation? If I have a medical condition, will it be excluded from the policy? How much will be paid after a claim? Exactly how much will the premiums be now? Will the premiums go up in the future, and by how much? From there, you need to decide on the essential features of an income protection policy and other additional elements that will ensure you to have the best comprehensive policy: Waiting period Deciding on the right waiting period for your situation is highly essential. Waiting period is the amount of time your are willing to wait from the time you fell ill and got injured for your insurance policy to come into effect. You can choose from as 14 days, or up to two years. Remember that shorter waiting periods will incur a higher premium rate, so make sure that your assess the situation on whether you ll be able to survive on a longer period with your financial situation. Benefit period The length of of time you are to receive benefit payments from your policy, from the expiry of the waiting period you have opt for is called benefit period. You can select from two years, to five years, or until 65 years of age. Some policies offer extended period until the age of 70 and other policies can cover you for a lifetime income protection. However, a longer length of coverage also means that you will be paying a higher premium rate. Index- linked premiums By having an indexed linked policy, it that means your premiums and cover will keep up with inflation. Doing so will ensure that your policy is still in good value and it ll cover you for the money you will need in the future. 45
Guaranteed future insurability It is recommended to consider a policy that has guaranteed future insurability, as it will allow you to increase your level of cover without further underwriting. This is a very important feature to have particularly if there are changes to your circumstance, such as buying a new home or having another child. Non- cancellable policy It may be a good idea to take into account a non- cancellable policy, as you will be able to avoid reassessments on your present health conditions or other factors every renewal, which could possibly raise your premium rate or cover can be refused to be continued further. Coverage in the event of death In the event when a death occurs, your income protection benefit payments (from your monthly insured income) can be paid to your dependents. Needle stick coverage Needle stick coverage is valuable particularly if you are in healthcare or a medical professional - this is to ensure that in the event of an incident in which needle sticks are involved, you will be covered in instances of HIV infection or Hepatitis whilst at work. Continuing superannuation contributions When you are unable to work due an illness or injury and you take some time off work, normally your super contributions will cease as well. However, having income protection insurance means that the payments for your super will still be made. What to look for from Income Protection quotes You need an income protection insurance quote when you are comparing income insurance policies. The insurance quotes are available online and they usually vary in amounts from one company to another. This is because of the different factors that are taken into consideration according to the policy offered by the insurer agency. Your willingness and capacity to pay the amount of policy also determines the cost. The amount of premiums paid, whether high or low, is not a guarantee that your policy will benefit you more when the time comes and you need the benefit payout. Therefore, it is important that you compare all aspects of an income protection quote - which includes the waiting period, benefit period, whether it is an agreed value or indemnity value policy, and the level of coverage that you may require. 46
Benefits in getting online Income Protection quotes When you are about to take out insurance such as income protection insurance, it is ideal that you get an overview of the costs that you need to pay. This is where income protection quotes are beneficial. Aside from sourcing them from various insurance companies, you can conveniently get them online. Your effort spent in scouring for your options will be minimised if you search online, and it can be done easily while sitting in front of your computer at any time of the day or night. Doing an online search for income protection quotes is worthwhile because: Comparing online quotes will give you more options. Don t just get stuck on one or two options when buying income protection insurance. Make sure that you get enough information regarding your selections in order to maximise the benefits for you and your family. This is the reason why getting online income protection quotes is worth your time. You can check on different websites who can give you free quotes and even give you ready comparisons of the prices offered by the leading insurance companies. It is important to look for free quotes because you shouldn t be spending money before you have even seen what the company has to offer, and by offering a free quote the insurer already has your family s financial wellbeing in mind. You will get the best possible income protection insurance policy. When you begin comparing all available income protection quotes, you realise that policies are not the same. Features always vary and you have to look into the one which gives you the utmost benefit. Be certain when it comes to the features, terms and conditions of your insurance policy so that you won t be fooled when it comes to your claims later on. There are even financial advisors online who can give you free advice and guidance to make the best choice and select the most appropriate income protection insurance. Income protection quotes are very accessible so that you will have the chance to compare your options and choose the one that is most fitting to your needs. Since it is an investment on your part, you need to ensure that you are getting the best benefit or return that will give you and your family a great relief in times of financial uncertainty. 47
Frequently Asked Questions What is Income Protection? It is a form of insurance that protects your income as the asset and pays you a portion of your income when you get sick or injured. How much do you get? Most common policies will pay benefits up to 75% of your normal gross income. Does my sickness or injury has to be work- related to get the payment? The cause of your sickness or injury does not need to be work- related. Is it tax- deductible? The premiums payments on your income protection insurance are tax deductible and just like your normal income, the benefit payment you get from your insurer are considered as a personal taxable income, for that financial year. When will you be paid? Depending on the waiting period you have chosen, it can range from 14 days two years. Waiting period is the time the illness or injury has been keeping you out of work before you start receiving your benefits payment. If you opt for a shorter waiting period, the premium will generally be higher. What are the age restrictions? You have to be between the age of 18 to 64 years of age to be able to apply. The older you are, the higher the premium you will pay - this is due the nature of such age being prone to illnesses. If you are a smoker, this will also increase the level of premium you pay, as it is viewed as an added level of risk. Will my occupation affect how much I have to pay? If you are a manual or blue- collar worker (eg. miner, construction worker, etc.), you may be required to pay a higher premium compared to an office worker, due to the nature of work that you are exposed to, adding a level of risk. What is a benefit period? 48
A benefit period is the maximum length of time you would like your benefit payment to last when you are unable to work. Again, you will pay a higher premium if you choose a longer benefit period. Typical benefit periods are two years, five years or to age 65'. 49
Test your knowledge: Income Protection Quiz You have dived into the nitty gritty of this beginners guide, now let s test what you know about Income Protection Insurance! Are the following statements True or False? I have Life Insurance cover. I don t need to consider Income Protection FALSE Life insurance provides valuable protection for your dependants in the event of your death. The lump sum benefit amount can help your family to pay for your funeral, pay off the mortgage and pay for your children s education expenses. But what if you are ill or injured and unable to work for a few months? The bills will keep on coming and some expenses will need to be met even if you are not earning an income. This is where income protection can help - providing you coverage for short- term disabilities with a replacement income for up to 75% of your monthly earnings. Income Protection is only worth it if you have a six figure salary FALSE Even if you are not in the high income- earning bracket, it is still essential to protect your main source of income to avoid any financial stress for your family. Participating in extreme sports may increase the level of premium you pay TRUE If you participate in sports such as sky diving, rock climbing or motorbike riding, you are considered to pose a much higher risk to the insurer compared to those who do not, therefore you will be paying higher premiums. I have an office job, so I don't need to consider Income Protection FALSE 50
No matter what your line of employment is, accidents and serious illness can still occur to you when least expected. An Income Protection plan will provide a financial safety net if such an event should put you out of work by providing up to 75% of your regular earnings while you are out of work. Income Protection is not necessary if I have WorkCover FALSE While WorkCover may provide some coverage for work- related injuries that occur on site, compensation will not be paid for injuries or illness that occur outside of work. Some states will also apply caps to the amount of compensation paid." I have income protection cover within my super, so I may not need to consider other plans FALSE Income protection insurance through superannuation usually comes with a default level of coverage and is only able to offer a limited range of features. It may not be suitable for people who require a specific level of protection. Even if I only work part- time, I can still apply for Income Protection TRUE You can still apply for income protection insurance if you are employed in a part- time role on the provision that you are working at least 20 hours a week and have been in the position for at least 12 months. Applicants must still be between 18 to 64 years old and an Australian resident. Income Protection does not cover redundancy TRUE Income protection does not provide coverage for involuntary unemployment. However, some policies offer a premium waiver for a set period, given that you provide evidence to the insurer that you have attempted to look for new employment. I can only receive 75% of my income TRUE 51
Most income protection policies will only provide a benefit payment to a maximum of 75% of your monthly income. Some insurers will allow extra coverage of up to 15%, however, the additional amount must be used as a superannuation contribution. Selecting a longer waiting period can help lower your premium payments TRUE Selecting a longer waiting period will result in a reduction in the premium payment. It is essential to assess your financial situation to determine a suitable waiting period for you, as a shorter waiting period does not necessarily mean it is better. Consider how much sick leave and annual leave you may have or if you have substantial savings to cover your expenses whilst you are waiting for you benefit payment to start. Men pay higher Income Protection premiums compared to women FALSE Women pay higher income protection premiums due to the likelihood of a claim is higher and they tend to require more time to recover. Smokers pay higher income protection premiums TRUE Smokers are considered to carry greater health risks, which are reflected through the level of premium paid. If you already have a policy with premium based on your smoking status, some insurers may be able to offer a reduction in premiums to non- smoker rates provided that you have not smoked for the last 12 months. Stepped premiums are the cheaper payment option FALSE Stepped premiums will often start lower compared to level premiums, however the premiums will increase over the term of the policy. Level premiums will start off higher than stepped, but will remain the same over the life of the policy. Stepped premiums can be a good option for with a smaller budget in their early years. 52
I can still get income protection insurance if I have a pre- existing medical condition TRUE You can still apply for income protection insurance if you have a pre- existing medical condition. It is essential that you are open and honest to your insurer about your condition, as this will not only affect the extent of your insurance coverage and the premium rates you pay, but also the success of your claim. Income Protection insurance is tax- deductible TRUE Income Protection premiums are tax- deductible and the cover can be tailored to suit your needs and your budget. If you have a linked income protection policy with death or disability cover, your insurer will have to advise you the portion of insurance premium you pay that may be tax deductible. You may not be able to claim tax deduction at all if you are unable to obtain the split. 53