Income Protection:

Did you know?
• 80% of people insure their car and home, but do not insure their own income or life.   What do you think is more important?
• Less than 1 in 5 Australians have income protection cover with a benefit period of greater than 2 years (Yes, this includes company sponsored plans!).
• 2 of 3 males, 1 of 3 females, or 1 of 2 Australians will suffer a traumatic event during their working life.
• 50% of all trauma policies sold are to "white collar" workers.
• Most trauma claims occur within 2.5 years of policy commencement.
• A person is 3 times more likely to suffer trauma than death before age 65.
• There are approximately 117,000 Australians who are "permanently unable to work" due to illness or injury.
• 1 in 3 Australians will be off work for more than 3 months during their working life due to illness or injury.
• When a person is off work for more than 3 months, then the average duration of claim is usually 4.2 years!
• The most common type of work related injury is industrial deafness, followed closely by back related injuries.
• Each year, approximately 1 million Australians experience serious injuries or illness, which either require hospitalisation or prevent them from working
• Half of all serious accidents occur away from work, so workers are not covered by workers compensation.
• 20,000 Australian children (minors) are primary care givers for at least one parent due the parent's sickness or disability.

What is it?
An Income Protection policy, occasionally known as a ‘Sickness & Accident’ policy will provide a monthly (or fortnightly) benefit if the life insured is unable to work due to sickness or injury.  The only exclusions on this type of policy is any disablement arising from self inflicted injury, war or a pre existing condition.

Why is it important?
Of all the assets you have, the ability to earn income is one of the most important. Without a regular income maintaining your commitments would not be possible. Hence, Financial Advisers Australia (FAA) recommends that you have adequate insurance to protect your income and to protect your family's security.

This means that in the event that you become injured or ill, and are unable to work in your own occupation for an extended period of time, a benefit will be paid to you to enable you to continue paying your commitments and achieve all your planned objectives.

How can we help you?
When considering an Income Protection policy, there are a number of variables to take into account that will influence the premium, either up or down.
• The Waiting Period selected (e.g. 14 days, 30 days etc. up to 730 days)
• The amount of the monthly benefit payable (the insured amount)
• The benefit payable period (the maximum period for which a claim will be paid e.g. 2 years, 5 years, to age 65 etc)
• A Basic policy, or a ‘Plus’ policy with additional benefits
• Occupational category, based on duties performed in your occupation
• Male or Female (different rates apply, due to statistical reasons)
• Smoker (standard rates apply) or Non-smoker (discount rates apply)
• Age at time of application. Premiums increase year to year, unless a level premium option has been selected. Level premiums are more expensive initially, but over a longer period can prove to be the best value for money.
• Premiums are tax deductible, as benefits payable are tax assessable.

The maximum benefit that can be provided is 75% of your earned income, less business expenses, but before tax. (Business Expenses can be insured, but this cover is totally separate to Income Protection).

The Waiting Period, which you selected, is the amount of time between the date of your disablement and the date at which you can go onto claim. ie- If you had a policy with a 14 day waiting period, on the 15th day of your disablement, you would then go onto claim.

The Benefit Payable Period is the maximum period that you would receive a benefit. The insurance company will pay the monthly benefit for either the duration of your disablement or for the benefit payable period selected, whichever comes first.

Most insurance companies will have a basic policy as well as a ‘plus’ policy with additional features and benefits. This will vary from company to company, but as a general rule a Basic income protection policy will have the following standard benefits : Total Disability, Partial Disablement, Rehabilitation Assistance, Waiver of Premium, and 24 hour World Wide Protection. Guaranteed Renewable. Non Cancellable.

An Income Protection Plus policy will include all of the basic policies benefits as well as additional benefits such as : Death Cover, Trauma Cover, Overseas Assistance, Accommodation Assistance, Spouse, Elective Surgery, Unemployment Reinstatement, Specified injury, housekeeper, and Transportation.

In addition to both the basic and plus policies, in most cases you can also select any of the following benefits : Increasing Claims, Full AIDS Cover, Nursing Care, 4 Day Accident Cover, Guaranteed Insurability, and a Booster Benefit.

Definitions
Total Disability – means that by reason of injury or sickness you are not capable of generating, by way of personal exertion from your normal occupation 2/3rds or more of your average monthly income, and you are not actively engaged in any occupation, trade or business by way of personal exertion.

Partial Disablement – means that you: (a) engage in any occupation, trade or business to an limited extent as a result of an injury or sickness, and in consequence generate less than your average monthly income, or (b) are capable of generating, by way of personal exertion, 2/3rds or more of your average monthly income but, by reason of sickness or injury, not all of your average monthly income, and you are not totally disabled.

Rehabilitation Assistance – means that whilst you are disabled and are participating in a government rehabilitation program approved by the insurer, a benefit of up to 3 times the monthly insured benefit is payable to reimburse the incurred expenses.
Waiver of Premium – means that all disability premiums will be met by the insurer during any period in which a benefit for total or partial disability is being paid.

24 Hour, World Wide Protection – means that once the policy is in force, you are insured for sickness and accident 24 hours per day (ie. not only whilst your at work!). You are also covered world wide, whether your working or on holidays.

Death Cover – means that if you die whilst receiving benefits, the insurer can pay up to 6 times the insured benefit amount.

Trauma Cover – means Insurance provides a lump sum payment which will enable you to pay the outstanding component of the mortgage and to meet the unforeseen costs of medical treatment, rehabilitation, funeral cost etc. This will allow you to convalesce without the pressure of needing to return to work prematurely so as to meet cash flow requirements.

Overseas Assistance – means that if you suffer total disablement for at least 30 days from the start of the waiting period outside Australia, the insurer will provide the reimbursement of expenses incurred in returning to Australia of up to 3 times the insured monthly benefit, and the monthly benefit in respect of the waiting period.

Accommodation Assistance – means that if you are totally disabled and are either confined to bed more than 100 kilometres from home or, on the advice of a medical practitioner, confined to a bed and required to reside more than 100 kilometres from home or medical treatment, a lump sum amount up to $150 per day is payable to reimburse the accommodation costs of an immediate family member needing accommodation.

Spouse Benefit – means that a benefit may be payable if total disablement continues beyond 90 days and the income of your spouse ceases to allow them to assist with your recovery. This benefit will be paid for up to 6 months and the amount will be limited to the lesser of the monthly income forgone by the spouse or, $2,000 per month, or the monthly insured benefit.

Elective Surgery Benefit – means that the monthly insured benefit will still apply if you undergo elective surgery and as a result you have been totally disabled.

Unemployment Reinstatement – means that if you become unemployed through no fault of your own, you can suspend your policy for up to 12 months, and then recommence the policy when employed.

Specified Injury Benefit – means that if you were to suffer a specified injury (as in the CIB) and your waiting period is 4 weeks or less, and as a result of you injury you would qualify for a benefit after the waiting period, the monthly benefit is back dated until when the injury occurred.

Housekeeper Benefit – means that the cost of a housekeeper is reimbursed for up to 6 months if you are receiving your monthly benefit and are confined to or near a bed at home and are totally dependant upon housekeeping services.

Transportation Benefit – means that if you suffer a loss of income in Australia and as a result require emergency transportation, this benefit may become payable. This is paid as a reimbursement of actual costs incurred for your transportation.

Increasing Claims Benefit – means that if your were to go onto claim, the benefit amount would increase each year in line with the CPI.

Full Aids Cover – means that the monthly benefit will be payable if you are disabled directly or indirectly as a result of HIV or AIDS, regardless of how it was contracted.

Nursing Care Benefit – means that a benefit will be paid during the waiting period if you are confined to bed by a medical practitioner, and require the continuous care of a registered nurse more than 3 days.

Accident Benefit – means that if you are totally disabled as a result of injury for more than 3 consecutive days during the waiting period, this benefit will be payable.

Guaranteed Insurability – means that you can increase you monthly benefit by up to 15% without any further health evidence every 3 years.

Booster Benefit – means that your monthly benefit is increased by 1/3rd for up to the first 3 months.

Important disclosure
All information included on this site is Life Insurance Advisory Service of Australia’s interpretation only, and for exact definitions, the individual insurance companies product disclosure statement should be referred to at all times.

Contact us
For further information about your income protection options please contact us today for a free no obligation two hour appointment.

Prepared by John Hehir Financial Advisers Australia (FAA)