Also known as Salary Continuance, Income Protection will pay you up to 75% of your salary as a monthly income benefit in the event you are unable to work for an extended period of time due to illness or injury after satisfying a waiting period.
I’ll use a case study to help explain what that means. Let’s assume that John earns $60,000 per annum. As a result of an accident on the weekend, John is expected to be out of work for six months. His income protection policy has a waiting period of 30 days, so he wont start getting paid a benefit for at least that long and most policies pay monthly in arrears so he may have to realistically wait 60 days before getting any cash.
He could change his waiting period to 14 days but the cost of his premium would go up dramatically. Yet another reason to have multiple income streams and savings. But if you dont have money in savings then you might just have to pay the higher premium just to provide that extra security blanket.
After completing the waiting period John would get paid $3,750 ($60,000 x 75% / 12) per month to his bank account until he is able to return to work. The thing that John needs to be aware of is his benefit period. As John has only a 2 benefit period, he will not be paid after the 2 years if his injuries become long term.
Benefit periods for income protection range from 1, 2 or 5 years, right up to age 65. Clearly, age 65 is the better option just in case something ever happens to you that wipes you out of your income generating ability without killing you.
And again, the longer the benefit period, the higher the premium.
All these benefits add up and while they’re extremely valuable and beneficial it brings me to the title of this article. Put it in Super.
A lot of advisers will tell you that you should have your income protection in your own name as you can get access to more features and benefits outside of Super than you can inside plus you can claim the premiums as a tax deductible expense. This is true, but for me, I believe that longevity of the product is more important than having a multitude of bells and whistles.
We live in a world of consumerism and as our monthly list of expenditures and commitments grow we occasionally have pause to reflect on all the things that take money out of our bank account. Too many times I have seen individuals cancel their insurances because they could no longer justify spending the money as it conflicted with more immediately gratifying payments. New cars, holidays and even Pay TV subscriptions.
So why not apply for cover in your Superannuation fund. Most Super funds have some pretty good policies available these days and if yours doesn’t, Choice of Super legislation allows you to change your provider. Underwriting requirements are generally less onerous also, so this could be handy if you’ve had a bit of a dodgy health history which could result in exclusions from a personally held policy.
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