Income Protection cover (sometimes referred to as Salary Continuance) provides regular payments if you can’t work due to illness or injury.
Generally speaking, you can cover up to 75% of your earnings against loss. It is also possible to increase this amount by protecting your mortgage repayments or SGC contributions.
Using super to pay for your insurance
Some types of insurance allow you to pay the premiums automatically from your superannuation fund. This can be a tax-effective option because it enables you to pay your premiums with pre-tax money. Using money that is normally inaccessible until you retire also means you don’t have to dip into your daily living budget. Income protection cover is usually tax deductible to the owner. If your cover is inside super, the super fund is the owner of the policy and they will receive the tax deduction, not you.
Cost of premiums
Apart from sex, occupation, health and age some variable factors that affect premium costs are:
- The percentage of your earnings you want to cover.
- The waiting period before you receive money (30 days, 60 days, 90 days, 1 year, 2 years).
- The length of the benefit period (2 years, 5 years, to age 60/65/70).
- Stepped or level premiums. Stepped premiums increase with the life insured’s age. Level premiums don’t increase with your age up to age 65, after which time they revert to a stepped-style premium. Stepped premiums are generally cheaper at the beginning but over time become more expensive.
- ‘Agreed’ or ‘indemnity’ policy. An indemnity policy provides you with a monthly benefit that is the lesser of 75% of the average monthly income you earned in the 12 months before the claim and the insured monthly benefit amount (including any indexation increases). An agreed value policy which provides you with the monthly benefit you have insured for (including any indexation increases), regardless of any fluctuation in your income since you took out the policy.
It’s important to accurately assess how much insurance you need. This is an area where Wealthwise can help you. We’ll help identify your greatest areas of risk and work out how much cover is appropriate for your needs.