Types of Income Protection
Income protection provides 75% of your gross income if you are unable to work due to sickness or injury
Income protection under superannuation is called salary continuance, however income protection is 100% tax deducible
Income protection policies can be tailored to suit your needs, with flexible benefit and waiting periods
Income Protection
This provides a monthly benefit to the person insured in the event that they are unable to work due to sickness, injury or accident. Income protection will provide cover up to a maximum of 75% of your gross annual income. There is no specific list of events for which you can claim on income protection, the ability to claim is very broad. Essentially if you are unable to work due to sickness or accident you can claim. Note that income protection policies do not provide cover for redundancy.
It is important to note that income protection premiums are 100% tax deductible
Salary Continuance
The difference between salary continuance and income protection is that salary continuance is offered through superannuation, and has a maximum benefit period of 2 years. Whereas income protection can have a benefit up to age 65. Most people should check with their employer to see if they have cover under super before establishing external cover.
It is important to note that income protection premiums are 100% tax deductible
Agreed Value or Indemnity Policy
Agreed Value
This is where you prove your income at the application stage, and the insurance company agreed to the monthly benefit. This means that in the future, regardless of if your income reduces, you will be paid the agreed monthly benefit. This also means that in the event of a claim financial evidence will not need to be produced.
Indemnity Policies
This is where financial evidence is not required at the application stage, but will be needed in the event of a claim. However if your income reduces in the future the policy will only pay 75% of your lower income level. Indemnity cover does have lower premiums than agreed value. For salary based wage earners indemnity cover is an attractive lower cost form of cover.
Waiting Period and Benefit Period
Waiting Period
This determines how long you are unable to work before the policy starts to pay your claim. For example with a 30 day waiting period your claim would start after you have been unable to work for 31 days. There are a wide range of waiting periods as options on policies, including 14, 30, 60, 90, 180 day, 1 year and 2 year.
Benefit Period
The benefit period is how long you will receive payments in the event of a long term claim. This can be 2 years, 5 years, or to a specific age, e.g. age 60 or age 65. Ideally people take cover with a long benefit period as this will provide a high level of cover.