1. How much money have I earned up until now?
If you’re like me and have been working non-stop since the day you completed your studies, you might have an impressive 16+ years of income earning under your belt. While I can’t recall each year’s income I’d venture a guess that my total income over these 16+ years to be about $960,000 gross.
2. What proportion was made from employment vs passive income?
I have made many investments throughout the years in the hope of generating a substantial passive income. However, to date, my passive income from investments has yielded only about $25,000 of the above sum.
Are you taking the appropriate steps to protect this asset? Do you have appropriate insurance coverage, such as income protection, in place to provide you and your family with financial security should you suffer a sickness or accident and not be able to work and earn an income.
Compare Income Protection Insurance Quotes
- Pre-Existing Medical Condition Options
- Get Insured for Extreme Sports
- Waiting Period Options
- Flexible Benefit Periods Available
How Income Protection Insurance can Help You
However, this is not always the case. For example, if you have a 2 or 5 year benefit period and your policy has paid out your maximum benefit, it will stop. It’s best to thoroughly read and understand the relevant insurer’s PDS before you commit to a decisions.
Your benefit period will vary according to your chosen insurer, and is set by you during the application process, usually at 2 to 5 years or until your age of 65. In some cases the benefit might be payable until your 70th birthday.
- Your waiting period – Generally no income is due to you during this period of time.
- Your insurers payment cycle – Assuming you have met the eligibility to claim on the Policy, your monthly income (benefit) is generally paid a month in arears. Therefore, if you had, for example a 30 day waiting period, the first payment you would receive will be on day 60.
The waiting period is generally selected by you at application time and will impact your premiums and ability to claim.
It depends. If you feel your ability to work and generate an income is worth insuring, then yes.
- Buying a house to help keep atop of mortgage payments
- Having an extra dependent (wife/husband, child, parent etc.)
- Self-employed and being unable to work. Most self-employed individuals don’t have sick leave to fall back on
- Switching jobs and no longer receiving the same benefits
- Having additional financial commitments, like a property portfolio
Such a protection policy can allow you to provide for yourself and your family. Continue to pay your mortgage, credit cards and bills, while keeping your investment strategies in place.
- More difficult to access benefits
- The eligibility criteria of the polices can be more stern
People generally have a misconception regarding what exactly workers comp covers and its payment period. The primary limitation is that it will only pay if the injury happens at work, usually not covering you for sicknesses or accidents that occur at home. The maximum pay-outs also vary from state to state.
Centrelink, the sickness allowance benefit provides eligible Australian residents a $527 per fortnight benefit should you have a sickness or accident and satisfy all their requirements, including:
- Income Test
- Asset Test
- Residency Requirements, and
- Waiting Periods, which depends on your circumstances
The benefits provided by centrelink are extremely low and most working Australians would find it very difficult to meet all the eligibility criteria.
Shop around and compare cover and prices – they differ greatly. Your premiums will be dependent on a number of things, including your current salary and benefit period you want to be covered for. Other determining factors include your:
- Smoking and drinking status
- Health and pre-existing medical conditions
- Your occupation, sport and pastime activities
On the bright side, premiums for protection insurance are generally tax deductible.
There are generally three main options:
- Indemnity value covers you for a monthly benefit based on your earnings before the accident and illness.
- Agreed value generally pays a fixed sum and will not reduce with any changes to your income, however you need to provide financial evidence to support this fixed monthly benefit during application stage.
- Guaranteed agreed value is a term used by select insurers to validate your financials are received and on file, confirming your monthly benefit.
For more ways to tailor your policy, read our detailed policy option guide.
Whatever policy you choose, there are some key questions to ask:
Things You Must Tell Your Insurer
You must correctly and accurately answer all the questions the insurer requires of you, to at the time of your application, including full details of your:
You must also tell your insurer of circumstances that might have changed between the time you applied and when the cover starts, for example becoming pregnant. Also, tell your insurer if you partake in dangerous hobbies or have a lifestyle that includes heavy drinking and/or taking drugs.
If you already have a pre-existing medical condition, look for an insurer that will be prepared to cover it, although you might have to pay more or have an exclusion attached to it.
Provide the insurer with the most complete information you can. This allows them to accurately understand your particular circumstances.
How to Buy Income Protection
You can buy a protection policy from an independent financial advisor or directly from the insurance company. Remember, when taking out any insurance policy, you should carefully read the terms and conditions.
Look for helpful built in benefits that might be included in your policy. It’s also important that you regularly review your total insurance coverage package as your circumstances change. Ask an experienced insurance advisor about the insurance products they have which best meet your current needs.
You can also save on your protection policy by:
- Increasing your waiting period
- Decrease your benefit period
- Remove inflation protection
- Only cover the portion of the income you require
- Shop around and compare quotes
- Quit smoking
- Take out cover as early as possible
- Remove unnecessary options
As a working professional, your most important assets is you. The ever-present possibility of sickness or injury is without a doubt your biggest risk. Protect yourself and your family’s needs, while you’re unable to work and earn a salary. Contact an insurance specialist and start comparing quotes today.