© MEDIQ Financial Services - a Corporate Authorised Representative of Synchron AFS Licence No. 243313 for Investment, SMSF and Risk Insurance advice.
February 15th, 2016
The risk of not being able to work due to illness or injury is very real for everyone, including medical professionals. While sick leave and workers’ compensation provide some level of coverage, income protection insurance gives you an additional level of cover that could ensure that you enjoy a similar lifestyle as you would without the illness or injury. Getting the right type of income protection insurance could also allow you and your family to continue meeting your financial obligations until you’ve fully recovered and can return to work.
Income protection insurance plays an important role beyond standard benefits such as workers’ compensation and sick leave. While you may be eligible for workers’ compensation, sick leave, the disability support pension, and other benefits if you do experience an illness or injury, these may not cover your expenses adequately.
Sick leave, for example, covers only short-term conditions rather than more serious injuries or illnesses. Sick leave is only ten days per year if you are in full-time employment or pro rata of ten day per year for part-time workers. Similarly, the maximum disability support pension payable to those who are eligible is around $20,000 per year. This will probably not be sufficient for you to maintain your current lifestyle.
Workers’ compensation covers only work-related illnesses or injuries, and payments can stop after 130 weeks unless you satisfy additional further conditions. Crucially, if you’re injured or become ill due to factors outside of your employment, you won’t be able to claim the benefits under workers’ compensation.
Income protection insurance, on the other hand, can cover as much as 75% of your salary, depending on the policy and insurer. This means you can maintain a lifestyle close to what you planned regardless of how long it takes for you to recover. Policy payouts usually take the form of a fixed monthly sum, and you could obtain coverage for right up until you return to work. If you’re unable to return to work, you could be covered until retirement age. Importantly, your policy usually covers you for non-work related illnesses and injuries, even those which happen overseas. This means you are protected regardless of how or where you became sick or injured.
Income protection is flexible and you’re typically able to opt in for additional coverage. Some income protection insurance policies give you the choice of adding short-term redundancy coverage, which means you can be assured of a similar income if you’re made redundant. Other options, such as extra disability, accident, or nursing benefits could be available.
Income protection insurance differs from similar types of insurance such as total and permanent disability cover. The latter covers you only in the event that you’re rendered permanently unable to work. In contrast, income protection insurance cover gives you the flexibility to be covered for a range of conditions or injuries, for a short period or until retirement.
As income protection insurance is designed to replace your regular income and pays as much as 75% of what you usually earn, you can enjoy the same or a similar lifestyle and quality of life even if you become ill or injured. Rather than having your life completely disrupted by your illness or injury, you can still achieve your life goals and maintain your living standards if the unexpected does arise.
Another reason to consider taking out income protection insurance is that your premiums are usually tax deductible, although life, trauma, and critical care insurance premiums are not tax deductible. Its tax deductibility allows you to reduce your tax burden while mitigating the risk of losing your current level of income.
Have you ever thought about what would happen if you were unable to pay your mortgage or your children’s school fees? Not being able to work, even if it’s only for three months, can have a devastating effect on your household’s financial obligations and negatively impact your long-term goals. Unless you’re independently wealthy, like most people you rely on your job for income.
Having an income protection insurance policy can mean that you’re able to fulfil your household and family commitments regardless of injury or illness. Whether you’re unable to return to work in the short term or for a longer period of time, your insurance payout allows you to make your mortgage repayments and to pay your household bills, school fees, and other long-term expenses, thereby reducing the impact of illness or injury on you and your family’s lifestyle.
With the right type of policy, you could still achieve your long-term plans and goals, whether that’s to pay off your mortgage, ensure your children finish university, or meet your investment goals.
If you do experience a serious illness or injury, your first priority will be to get better. If you do have income protection insurance, you’ll be able to focus completely on recovery and rehabilitation rather than worrying about your finances. As income protection insurance covers a substantial percentage of your regular income, you can concentrate on getting better and returning to work when you’re ready.