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Income protection – If you were ill for months or years how could you pay the bills?

More than likely you’ve heard of income protection insurance. A lot of Australians have, but feel that if they’re going to spend money on insurance, they’d rather protect their car, house, life and health.

The trouble with this is that people do get seriously ill and find themselves out of work for months, years, even permanently. Unfortunately, life insurance can’t help, and even top level health insurance only covers some of the medical bills in the short-term.

Thousands of Australians risk sliding into poverty

In 2008, the Australian Bureau of Statistics records show 7,624 Australians couldn’t work (1) and relied on sickness allowance – if they have a partner, that’s just $205.75 each per week (2).

With our cost of living now amongst the highest in the world, this can turn into a nightmare for the 69% of Australians who don’t have any personal income protection insurance (3).

With no money coming in, they struggle to put food on the table, cloth the family and pay the basic bills – let alone keep up with the car repayments and average mortgage of $367,000 (4).

Should we protect our biggest asset first?

J-Lo’s booty ($300 million), Mariah’s legs ($1 billion) and The Boss’s voice ($31 million) aside, being able to earn a living is the most valuable asset most of us will ever have. If you make $80,000 per annum now, it means you’ll earn more than $2.6 million over the next 20 years (allowing for inflation).

And while there seems to be an insurance to cover just about anything these days – including alien abduction – income protection insurance is a smart and inexpensive way to ensure that you and your family don’t have to worry about sliding into poverty if you get sick or injured.

How much does income protection insurance cost?

Here’s an example of how cost-effective it is for a healthy, 40yo, non-smoking male working in an office:

  • Earning the average wage of $1,248.20 per week (5)
  • Cost $62.47 per month (6)

If he gets sick or injured:

  • Insurer pays him 75% of his income, or $1,014.00 per week
  • Paid until he is well enough to return to work or age 65.

(The reason the benefit is not 100% is so that there’s still an incentive to get well and back into a contributing role in society.)

Ways to pay and tax benefits if buying through an advisor

You can get Income Protection through an industry superannuation fund by purchasing additional units of cover, or via a life insurance adviser.

One of the biggest benefits of buying income protection outside your superannuation, is that it becomes a tax deductible cost , which significantly reduces its impact on your household budget.

Waiting and benefit periods can be adapted to your needs. And premiums can be paid monthly, quarterly or yearly.

The most precious benefit of all

Of course, whichever way you go, the irreplaceable benefit is peace of mind for the rest of your life knowing that if you’re unlucky enough to be struck down with illness you and your family can maintain your current lifestyle while you’re on the road to recovery. Even months and years after sick leave and health insurance have been exhausted and there’s no salary coming in.

Like to find out more about Income Protection?

Here at Zenith, we’ve recently partnered with MBS Insurance who are Authorised Representatives of Lonsdale Financial Services (ASIC Authorised Representative Number 303212).

Their licensed insurance brokers can help you with:

  • expert advice on income protection
  • ongoing protection portfolio management support during claims.

If you’d like to find out more, contact us here at Zenith and we’ll put you in touch with the best person.

[1]ABS 1301.0 2008 Year Book” Income and community support. Accessed 28 January 2010.

[2] www.centrelink.gov.au accessed 28 January 2010

[3] WWW.Lifewise.org.au TNS/IFSA Investigating Income Protection Insurance in Australia July 2006 accessed 28 Jan 2010

[4] AFGonline.com.au report dated 3/12/09 accessed 5/1/10

[5] ABS 6302.0 Average weekly earnings Australia. August 2009. Accessed 28/1/01

[6] Quote provided by AIA Australia April 2010

Quotation figures as at 23 April 2010 based the following:

Male, aged 40, non-smoker

White collar duties

Income Protection

Indemnity Value

Benefit Period – to age 65

Waiting period – 60 days

Benefit Indexation not included

Claims Escalation not included

Please consult tax and financial professional to obtain appropriate advice