Income Protection Insurance is a policy that provides payments in place of your regular income in the event of an injury or illness, especially if you are away from work for an extended period of time. The amount of monthly benefit received is determined by your policy choice, and can be up to 75% of your usual income. Policy options are designed to suit individual requirements and are generally structured for benefit periods spanning 2 years, 5 years, or until age 65 or 70.
Reasonable Benefit Limits (RBLs) have been removed from superannuation since 2007, resulting in a dramatic uptake of income protection insurance premiums paid through super. There are several advantages in using superannuation to fund an insurance policy:
Price: Super funds often purchase policies in bulk, passing on the savings to customers.
Tax: Premiums are paid directly from your super account, instead of from after tax income, providing potential tax advantages.
Wage: Even if money is tight, cover is always available for you and your family.
Deductions: Premiums are automatically deducted, ensuring peace of mind.
How can the money be used?
As the name suggests, income protection insurance enables you to support yourself and your loved ones without sacrificing your standard of living. The money can be used for everyday needs as well as long-term commitments. Everything from food, education expenses, mortgage payments and ongoing debts can be covered.
Income protection insurance provides security for your entire family in the event you suffer unforeseen illness or injury; an especially important consideration if you are self-employed. Income protection insurance within super doesn’t affect day-to-day cash flow, facilitating quality of life while fulfilling ongoing financial obligations.
How soon will I be paid?
This will be determined by you as part of the policy you choose. This “waiting period” is the length of time before your payments begin. For example, if you are an employee with plenty of sick leave or annual leave saved up you may choose to commence income protection payments after first utilising your leave days. Premiums would dramatically increase if people claimed for every minor ailment lasting a day or two, therefore a manageable waiting period is offered as part of your insurance design.
In other words, a longer waiting period results in lower premiums. Insurance through super can be a cost-effective option facilitating lower premiums, a cover that suits your needs and the flexibility to alter the policy if your circumstances change.
How do I calculate Income Insurance premiums?
Your premiums will be calculated according to your desired cover along with your lifestyle choices. Factors considered include:
- Waiting Period. This refers to how long you wait until benefits accrue. Waiting periods can range anywhere from 14 days to 720 days. A shorter waiting period results in more expensive premiums.
- Benefit Period. This is the length of time you select for receiving payments. The benefit period can be as little as 2 years, or for the duration of your working life up to retirement age of 65 or 70. Higher premiums are paid for longer benefit periods.
- Policy Choices: Insurance companies can provide basic or premium cover. Super income protection insurance is also increasingly popular.
- Occupation: Increased premiums are paid if your occupation involves a greater degree of risk of accident or injury.
- Smoking Status: As there are numerous health risks involved with smoking, premiums may be higher.
- Age: Premiums get higher as you age due to increased risk factors for illness or injury.
- Income: Higher income results in increased premiums due to greater income protection payments in event of accident or illness.
- Gender: Research shows that women are at a higher risk of injury or illness than men, with premiums reflecting the comparative data.
- Hobbies: Dangerous pastimes and hobbies such as motorbike racing or base jumping may result in higher premiums.
- The Premium Type: Stepped and Level premiums are calculated differently.
Income Protection Insurance is designed to suit your unique circumstances, resulting in a product that fulfils your lifestyle requirements. A regular income is essential to cover immediate and ongoing expenses, and insurance through super is the guaranteed means of maintaining financial control, achieving your goals and establishing peace of mind.
1. This post contains factual info and my own opinion about super in general. It doesn’t take into account your situation. While I am not personally recommending CareSuper, information about superannuation can be obtained from their website caresuper.com.au and it’s always good to get your own advice about financial matters.
2. CareSuper has paid a fee for me to post this blog about super . Although this blog post is sponsored by Care Super however all content is my own.