Income Protection – choices that could save you money

Most people recognise the importance of Income Protection insurance – your economic life depends on your ability to earn an income, and so holding insurance that protects this makes a lot of sense.  You may not know however that there are several factors that determine how much you will pay for your Income Protection cover, many of which you can control.  Armed with this knowledge, you can ensure your Income Protection cover is right for your needs, and you are only paying for coverage that suits you.

 

Here are the factors that determine how much you will pay for your Income Protection cover:

  • Age – as you get older, the cost will rise.
  • Occupation – all other things being equal, an office worker will have a lower premium than someone working on a construction site for instance.
  • Waiting period – this is a key one you can influence.  The most common option is to have a 30 day waiting period.  This is the amount of time between when you become unable to work due to illness or injury, and when you can commence receiving an insurance benefit.  Most of us have some annual leave and savings available to us, and so could get by for a certain time without too much financial hardship.  If you could manage a 90 day waiting period your premiums will be about 40% cheaper than a 30 day waiting period.
  • Benefit period – this is the period of time your cover will pay whilst you remain unable to work.  Ideally this would be to age 65 (or perhaps 70), however you will find many policies with 2 year or 5 year benefit periods.  This is a clear case of you get what you pay for.
  • Type of policy – most companies will offer a basic type of policy, and then a more fully featured option that will include things like rehabilitation benefits and reduced waiting periods in specific circumstances.  Check that you are only paying for what you need.
  • Options chosen – an example of an option we would typically consider worthwhile is the “increasing claim” option which means that if you are on claim for more than a year, your benefit will increase with inflation.  This could be really beneficial if you ended up on a benefit long term.
  • Health – in applying for Income Protection cover you will be asked some medical questions.  If you have a history of poor health, it is likely your premiums will be higher than normal.  In some cases cover may not be offered at all.  Smokers will pay more than non-smokers.
  • Premium type – There are two types of premium – Stepped and Level.  Stepped is cheaper initially but gets more expensive as you age.  Level is dearer at commencement, but rises far less over time, ensuring cover remains affordable later in life.
  • Insurance company – personal insurance is a competitive market and so it pays to shop around.  We have software that enables us to compare all the insurers in the market place to find the best deal, remembering that the cheapest is rarely the best.

Income Protection can sometimes be held through superannuation, where it is often referred to as Salary Continuance.  In most cases it is certainly better to have Income Protection through your super, than to have no Income Protection cover at all.  However you should consider that the premiums being deducted from your super are lessening what your eventual retirement benefit will reach.  Income Protection insurance is tax deductable to individuals (unlike life insurance for instance), and so on an after tax basis it may be that holding and paying for your Income Protection insurance outside of superannuation yields a better outcome.

There is quite a bit of customisation possible with Income Protection insurance.  You should certainly consider obtaining advice to tailor a solution to your needs and budget.  We are here to help.  Book your appointment today.

 

Important Information:

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.