If you’re employed or self‑employed, income protection insurance can replace up to 75% of your pre-tax income if you are unable to work due to illness or injury.
Why protect your income?
If you are unable to work for an extended period due to illness or injury, you could run down your savings very quickly and face financial difficulty. Rather than putting your family’s lifestyle at risk, by taking out income protection insurance, you could receive a monthly benefit of up to 75% of your income to help replace your lost earnings while you recover.
The premiums for income protection insurance are generally tax-deductible and benefits received will generally be assessable as income.1
Most income protection policies offer a range of waiting periods before you start receiving your insurance benefit (with options normally between 14 days and two years). You can also choose from a range of benefit payment periods, with maximum cover generally available to age 65.
What is your future earning capacity?
If you’re in any doubt about the importance of protecting your income, the table below shows how much you could earn by the time you reach age 65. For example, if you are currently 35 and earn $80,000 pa, you could earn around $3.8 million before you turn 65. Isn’t that worth protecting in the event that you are unable to work due to illness or injury?
How much will you earn by age 65?
|Age 25||Age 35||Age 45||Age 55|
Assumptions: Income increases by 3% pa. No employment breaks. Figures rounded to nearest $10,000. 1. You should seek advice from a registered tax agent regarding your own tax position.
Leanne works full-time and earns a salary of $90,000 pa. She owns a home worth $500,000 and has a mortgage of $350,000. If she’s unable to work due to illness or injury, she wants to be able to meet her living expenses and mortgage repayments without having to eat into her limited savings.
After assessing her goals and financial situation, her financial adviser recommends she take out income protection insurance to cover 75% of her monthly income. Shortly after taking out the insurance, Leanne is involved in a serious car accident and is unable to work for six months.
Because Leanne had income protection insurance, she receives the full benefit of $5,625 per month for five months after her initial one month waiting period (where she’s covered by sick leave from her employer). A
As a result, Leanne receives a total income of $35,625 during the six months she’s off work – consisting of a combination of sick leave and income protection benefits.
If Leanne had not taken out income protection insurance, she would only have received a sick leave payment of $7,500 and would have struggled to meet her living expenses, mortgage repayments and out-of-pocket medical costs.
Other key considerations
• When choosing a waiting period for income protection insurance, it’s important to take into account any sick leave and related benefits provided by your employer.
• Income protection insurance premiums will generally be lower if you choose a longer waiting period and a shorter benefit payment period.
• If you have a family, you should ensure you have enough insurance to replace your income if you die, become totally and permanently disabled or suffer a critical illness.
We can help you determine whether income protection insurance suits your needs and circumstances.
Important information and disclaimer This publication has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’), a member of the National Australia Bank group of companies (‘NAB Group’), 105–153 Miller Street, North Sydney 2060. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this publication as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information. Information in this publication is accurate as at 1 July 2018. While it is believed the information in this publication is accurate and reliable, the accuracy of that information is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither GWMAS nor any member of the NAB Group, nor their employees or directors gives any warranty of accuracy, or accepts any responsibility for errors or omissions in this publication. Any case studies in this publication are for illustration purposes only. The investment returns shown in any case studies in this presentation are hypothetical examples only and do not reflect the historical or future returns of any specific financial products. Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.