Clearing up confusion on protecting income
CONFUSION about income protection insurance is costing Australians money, tax benefits and potentially much more.
Research has found a lack of confidence about income protection and other forms of life insurance, and much can be blamed on nobody wanting to use the term “death cover”.
Life insurance is the name given to cover paid to family members when you die, but also is the umbrella term covering four types of insurance: death, total and permanent disability, trauma and income protection.
A study by iSelect has found that one in three Australians have some form of life insurance, but half of those only have cover through their superannuation policy, and are not confident that it’s enough to cover them and their family.
Income protection – which pays up to 75 per cent of your income if you can’t work – usually gets lumped in the same basket as taboo topics such as death and disability.
“Income protection is just about keeping your family in a lifestyle they are accustomed to,” says iSelect spokeswoman Laura Crowden.
Income protection costs vary depending on waiting periods, benefit periods and occupations, and a typical policy for a 35-44-year old male worker earning $80,000 a year costs between $100 and $130 a month tax-deductible; for a woman it is $150 to $200.
Crowden says people spent thousands of dollars each year insuring their homes, cars and even pets, and income protection simply ensured all those bills would still be paid if they couldn’t work.
Many people are also paying unnecessary insurance premiums because they have several super funds all with their own insurance.
Wotherspoon Wealth director and principal adviser Simon Wotherspoon says for many people, income protection was the most important personal insurance. “Generally, your biggest asset is your ability to earn an income in the future, particularly in your early or mid-career,” he says.
Crowden says: “If you are only going to have one, that’s the most important one”.