{"id":5790,"date":"2018-04-10T17:37:48","date_gmt":"2018-04-10T07:37:48","guid":{"rendered":"https:\/\/www.prosolution.com.au\/?p=5790"},"modified":"2018-04-11T09:49:47","modified_gmt":"2018-04-10T23:49:47","slug":"income-protection-insurance","status":"publish","type":"post","link":"https:\/\/wealthcoach.com.au\/stage\/income-protection-insurance\/","title":{"rendered":"Is income protection insurance really worth the money?"},"content":{"rendered":"

\"income<\/a><\/p>\n

Income protection insurance pays you a benefit in the event you cannot work to earn your regular income due to sickness or injury. Is this insurance worth having, what do you need to look out for and how can you get the best value for money?<\/p>\n

Insuring your million-dollar asset<\/h3>\n

Without a doubt, most people\u2019s most valuable asset is their ability to earn an income. The aggregate present value of an average professional\u2019s after-tax earnings from age 25 through to age 60 is estimated to be over $3.5 million (i.e. add up all after tax earnings and express it in today\u2019s dollars which excludes inflation)! I\u2019m sure you agree that this is an extremely valuable asset.<\/p>\n

The interesting thing is that although the clear majority of people insure their car against loss or damage, significantly fewer people insure their income. If your uninsured car were destroyed, it might take you a couple of years to recover financially. However, compare this to losing your income for an extended period. Perhaps you would never fully recover financially from such a loss.<\/p>\n

Unlikely but the consequences are significant<\/h3>\n

While we hope the likelihood of losing our ability to earn an income for an extended period is extremely low, the financial impact of it occurring is massive.<\/p>\n

The predominant concern or risk is long-term incapacity. That is, if you broke your leg and couldn\u2019t work for eight weeks, financially, you would probably recover in a relatively short period of time \u2013 you hopefully have some savings, sick leave, annual leave and family to help. However, if you were involved in a car accident and couldn\u2019t work for the next seven years, it’s very likely that such an event would put a big dent in your financial plans. Long-term incapacity has a severe financial impact \u2013 we don\u2019t need to be too concerned about short-term incapacity.<\/p>\n

Most financial strategies are dependent upon our ability to contribute a regular amount from income towards our investments. In the absence of these regular contributions, most financial strategies would fail. Therefore, this is a key and fundamental risk that must be considered.<\/p>\n

Key features of income protection insurance to be aware of<\/h3>\n

Income protection provides cover in case you cannot perform your usual occupation as a result of sickness or injury. Income protection policies usually pay a monthly benefit for a specific period of time \u2013 called the \u2018benefit period\u2019 \u2013 usually until age 65 (although cover inside super often only pays a two-year benefit). Importantly, income protection does not cover you for involuntary unemployment (such as loss of job or redundancy).<\/p>\n

The payment of an income protection benefit allows you to continue to afford to pay for living expenses and financial commitments, and you are able to insure up to 75\u00a0per\u00a0cent of your gross income. (Providers restrict coverage to this level to provide a financial incentive for people to recover and return to work.)<\/p>\n

Most income protection policies will have a \u2018waiting period\u2019, 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 \u2013 so this is an important aspect to check before signing up.<\/p>\n

Income protection insurance premiums are almost always tax-deductible.<\/p>\n

Two contract types\u2026 make sure you get what you\u2019ve paid for<\/h3>\n

Insurers typically offer two types of insurance contracts: indemnity or agreed value:<\/p>\n