Income protection cover in Australia no further a mystery

Income protection cover in Australia for most Australians, protecting their income for essential expenses like rent, groceries and energy bills will get difficult without a paycheck coming in. It solely gets more difficult if you’re offering for a family or paying off a home mortgage.

For those who’re frightened about something impacting their potential to work and producing home income. It may be time to research income protection insurance coverage in Australia.

What’s income protection Australia insurance coverage?

An income protection cover in Australia will substitute a portion of your revenue if you happen to sick or injured and unable to work. When you’ve purchased income protection insurance, that cover will generally be in place until you reach your retirement age, as long as you opt to work and pay insurance premiums.

What does income protection Australia insurance cover?

Based on ASIC, the utmost benefit you possibly can typically claim under your IP policy is 75% of your pre-tax income from the last 12 months. You may determine the appropriate level of cover to overlay living expenses whereas out of work. In some circumstances, you possibly can go for a lower benefit whenever you take out the income protection cover also depends on your affordability.

As soon as your income insurance cover kicks in, you’ll obtain a monthly income stream, similar to when you had been receiving an income due to personal exertion.

To make sure you’re eligible to receive these funds, ensure that your circumstances align with the following conditions:

Unemployment types covered

At all times, make sure you read your PDS to see what your specific IP (Income protection Australia) insurance covers. Usually, below are the events covered by income insurance cover:

  • Being dismissed out of your job
  • Being made redundant
  • In case of personally owned business or have a significant interest in going into insolvency administration
  • A fixed period employment contract of 12 months or longer being terminated earlier than the agreed date.
  • Distress from an illness or injury that leaves you temporary or permanent disability.

Bear in mind; if you give up or decide to quit your job, your income protection insurance would not cover that. Different issues that may cease you working; however typically aren’t covered under an income protection cover embody:

  • Being pregnant
  • Mental sicknesses
  • Substance abuse
  • Injury or illness due to drink driving

How to decide on an income insurance cover?

Income insurance cover customises in line with your situation, which may make selecting a policy reasonably tricky. It’s essential to weigh up your choices and decide one that works for you. Here are a few parameters that you need to think about:

The waiting period

 Once you purchase your income protection cover in Australia, you will choose a waiting period. Typically a waiting period is an interval between the point to stop working and the day to start receiving benefit payments. It may be anywhere from 15 days to two years, and an extended waiting period should imply a less expensive policy.

A licenced financial advisor will help you decide an appropriate waiting period based on your financial circumstances that would be sufficient to cover your living expenses. 

The benefit period

 The benefit period is the utmost period that will enable you to obtain payments when you cannot perform professional duties due to illness or injury. You have the option to choose on. However, some insurers have a limited benefit period like income protection policies.  In Australia, if policies are offered from Superannuation funds have often benefit periods last either two to five years. That means there will be no protection after the expiry of the benefit period. In case, if the absence from work duties is because of illness or injury is a permanent nature. 

Speak to your financial advisor who can help you choose an appropriate benefit period based on your financial circumstances that may save a few hundred to thousands of dollars. 

Percentage of income insured

 Bear in mind that you can choose the maximum benefit amount is generally up to 75% of your gross income, which may lower your desired proportion of benefit. 

Contact the financial advisor to help choose the appropriate amount of income insured that must be based on your financial circumstances.

How much income protection cover in Australia do I need?

You don’t need to set the income protection cover in Australia too low. Otherwise, you’ll wind up dipping into your financial savings regardless of your income protection insurance coverage. However, should you set it increased than vital, you are perhaps paying excessive premiums for no purpose. To work out how many of your earnings you need to have insured, you’ll need to take an extended effort to look at your budget range.

The purpose is to work out what proportion of your earnings you’ll want with a view to cover on a monthly budget. Costs to examine include:

  • Monthly mortgage or personal loan repayments
  • Living costs similar to groceries, lease, or petrol
  • Electricity, gas and internet broadband payments
  • College or school tuition fees 
  • Potential medical expenses, in case you’re unemployed as a result of illness or harm

Stepped vs level cover 

The choice right here will probably come down as to if or not you’ll review your policy for better terms and viability.

Stepped polices are cheaper at inception, but later, as time passes, they get expensive due to age risk factor.

Level premiums will stay identical for the lifetime of your policy. However, the value varies, relying on your age and other risk factors. Level premiums may be the right choice if you want to keep the cover on a longer-term. And it will not anticipate much change in your circumstances.

How to claim an income protection policy in Australia

When things go wrong, and when it will become imminent to claim the policy. Making an income protection claim can be a daunting process. Therefore, your financial adviser will be a great help and who stand aside to support you during the entire process. 

Do I pay tax in Australia on income protection claim proceeds?

Determining how tax and your income protection proceeds work in Australia might be complicated. The essential rule is, the premiums are tax-deductible. However, you’ll need to pay tax on any benefits payments. Please speak to your tax adviser or accountant regarding this to make this sort for you.

If you would like to know more speak to your financial advisor and incase have specific questions,  Concurrence Financial Planning will help answer your specific questions. Just drop us a line. Or Contact us to learn more about income protection insurance needs.