Income Protection Insurance

Who’s going to pay the bills if you can’t?

Imagine you stopped getting paid next week. How long would you be able to cope financially? Bills won’t stop coming in. And if you have debts, the bank won’t stop charging interest.

But accidents happen. So do illnesses. In fact an Institute of Actuaries report found that one in every three Australians will be unable to work for more than three months at some stage in their lives because of sickness or injury.

Income Protection will pay you up to 80% of your pre-tax income if you can’t work because of sickness and injury.

This money could go a long way to keeping your household, or your business, running while you concentrate on your recovery.

Note that since income protection is replacing your salaried income, any benefit payable is taxable, just like normal income. The good news is that premiums are tax deductible.

When applying for income protection, you decide on two major factors that control the premium:

• a waiting period after a disability occurs before income protection cover commences:
  • premiums become progressively cheaper the longer you nominate for a waiting period
  • waiting period can be as short as 14 days, typically is 30 days for people with cash reserves or sick leave. It can be much longer
• the benefit period for which payments will be made:
  • the longer the potential benefit period, the higher the premium
  • most people chose to age 65, but it can be as short as two years.

At Archimedes Financial Planning, we rely on independent actuarial assessment of the quality of policies from major Australian personal insurance companies. To determine the quality, an overall “Needs” number is assigned after actuaries review every word in policy conditions.

To illustrate this, suppose a 40-year old male earning $80,000 pa gross wanted to insure $5,000 per month with 30-day wait for benefits payable to age 65. The chart shows a cross-plot of policy quality (“Needs”) versus first-year premium (excluding policy fee and stamp duty).

It should be blindly obvious that price is not an indicator of quality. If you like playing Russian roulette on the chance of a successful income protection claim, then decide upon a policy based on price alone.

At Archimedes Financial Planning, we work closely with our clients to find the best quality policy given a person’s budget and occupation.