© MEDIQ Financial Services - a Corporate Authorised Representative of Synchron AFS Licence No. 243313 for Investment, SMSF and Risk Insurance advice.
February 2nd, 2012
Until quite late in your career, when you have amassed a significant asset base and you are approaching retirement, your ability to earn an income will remain your biggest asset. It never ceases to amaze us that whilst most doctors would think it absurd to drive an uninsured car or have their family living in an uninsured house, they do not place the same importance on insuring their income.
Income is the lifeblood of our wealth creation, without it most people run out of savings in less than 3 months and some would need to redraw on the home loan to last this long. We all know that using a redraw to fund cashflow is only a short term solution, and should never be viewed as an ‘insurance policy’. Only those who have amassed enough wealth to comfortably live off their investment income should consider ‘self insuring’.
As a simple rule, income protection will pay you 75% of your gross income if you are unable to work due to injury or illness. You select the waiting period, usually 30 days to 2 years before the payments start, and you select the benefit period, usually to age 65. Beyond these key variables there are other choices to be made, stepped v level, extras, inflation linked benefits etc. All of these aspects affect the premium and there are many ways to ensure your cover matches your needs and budget.
The types of injuries/illnesses that cause medical professionals to go on long term income claim would be back injuries, carpal tunnel, eye injuries, general trauma affecting hands and arms, depression and other mental illness etc. Issues around HIV and Hepatitis also must be considered, whilst you may be physically capable of carrying out your daily duties the AMA may choose to de-register you. It is critical for medical professionals to clarify whether their current or proposed cover definition deals with this situation.
In the past policies held inside superannuation were limited to a 2 year benefit, however these days a significant proportion of income protection is placed inside the super environment. One point to make in this regard is to remember that income protection is a tax deduction regardless of whether it is held in super or not, but it does take up part of your contribution limits if you choose to hold it inside super. As such if you are looking to maximize super as part of your wealth creation, and personal cash-flow is not an issue, you should look to maximize your overall tax deductions by holding income cover outside of super and making your full concessional super contributions each year.
When considering income protection the question is simple, would you rather receive 100% of your income now and 0% if you are injured … or receive 98% now and 75% until you reach 65 or 70?
To review your income protection please contact your Medical Wealth Strategist at firstname.lastname@example.org