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Life Insurance, TPD, Trauma, Income Protection

Income protection


Income protection insurance (also known as disability insurance or income replacement) provides a monthly payment stream to replace lost income if you are unable to work due to injury or sickness. It is designed to help you maintain a reasonable standard of living, while you are unable to continue earning your regular income.


While income protection insurance is an important consideration for anyone who works and relies on an income, it is also important for self-employed people, small business owners or professionals whose business relies heavily on their ability to work.


Level of cover
  • Generally, the maximum allowable cover is 75% of your gross wage.

  • Some policies will provide cover greater than 75%, but any additional amount must usually be paid into your superannuation fund.

Benefit period
  • This is the length of time between stopping work and when you can make a claim to start receiving payments. 

  • You can select a waiting period of between 30 days and two years.

  • The shorter the waiting period, the higher the premium.

  • This is the maximum length of time that you can receive payments while you are not working. 

  • You can select a benefit period from two years through to age 65.

  • The longer the benefit period, the higher the premium.

Waiting period
  • The cost and availability of cover is directly related to your specific occupation.  Consider-ation will be given to any risks associated with your job and how much you work, whether you are part-time or casual. 

  • Income protection is not available to people who are unemployed and may be paused if you go on some forms of extended leave, such as unpaid leave and maternity leave.

  • Your financial adviser can help you find an appropriate policy to cover your line of work.

Occupation rating

Income protection can be offered through your super fund or can be purchased as a stand alone policy outside of super.

Inside or outside of super

Income protection premiums are generally tax deductible, but the payments received are considered income and are subject to tax.

Tax treatment

How much income protection cover should I have?

It is important to choose the right level of cover for you and your family’s needs. 


You should think about:


  • Your financial commitments, what are they and how long will they last.

  • Whether your ongoing loan repayments to cover.

  • Whether you will need to fund childcare or housekeeping costs.

  • Whether your spouse will continue to work.

  • If you need the maximum level of cover, or if you have other financial resources to help cover expenses.

What type of policy should I have, indemnity or agreed?


There are two types of income protection policies, indemnity and agreed value.  The difference lies in how the insurance company works out how much to pay you when you claim.


Your adviser is the best person to help you work out which type of policy best suits your situation.  Your occupation and personal circumstances, such as being newly self employed, can sometimes affect which type of policy you can apply for.  The table below explains the differences between the two.


Indemnity contract
  • When you claim, you must prove to the insu-rance company how much you are earning. 

  • Your income at claim time will determine how much you are paid. 

  • If your income reduces in the future, you can only claim on the lower amount.  If your income increases in the future, the maximum you can be paid is the sum insured. 

  • Cheaper than an agreed value contract.

  • Generally salary continuance policies through superannuation are indemnity contracts.

  • May be an attractive way for salary earners in stable jobs to obtain cheaper income protection.

Agreed value contract
  • When you apply for the insurance, you provide evidence of how much you are earning to the insurance company. 

  • At claim time, you do not have to prove your income.

  • When you claim, the sum insured determines how much you are paid. 

  • If your income reduces in the future, you will still receive the higher amount.  If your income increases in the future, the maximum you can be paid is the sum insured.

  • More expensive than an indemnity contract but provides more certainty around the benefits.

What waiting period should I have?


To work out an appropriate waiting period, you will need to consider:

  • How much leave you have available (e.g. sick leave, long service leave);

  • Whether you have savings that can be used to fund your expenses during the waiting period.

You need to weigh up how long you can go without income, against the cost of the premium - the shorter the waiting period, the more expensive the insurance.


What benefit period should I have?


To work out an appropriate benefit period, you will need to consider:


  • Your financial commitments, what are they and how long will they last.

  • Whether you have ongoing loan repayments to cover and how long they will last.

  • What age you intend to retire.

  • Whether your spouse continue to work.

  • Other savings, such as superannuation, you have available to fund your future expenses.

We can help you determine appropriate income protection cover to meet your current situation and your ongoing needs.

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