Income Protection
Strategy 1
Protect your greatest asset – your income
If you’re employed or self employed, you should consider lncome protection Insurance.
What are the benefits?
By using this strategy you could:
- receive up to 75% of your pre-tax income if you are unable to work due to illness or injury, and
- meet your living expenses while you recover.
How does the strategy work?
Many people insure their home and contents. even their life. Yet. all too often, they don’t adequately protect what is potentially their greatest asset – their ability to earn an income.
Think about it this way. If you are unable to work for an extended period due to illness or injury, how will you meet your mortgage repayments and other bills and expenses? Without an income, you could run down your savings very quickly and face financial difficulty.
Rather than putting your family’s lifestyle at risk, by taking out Income Protection insurance, you could receive a monthly benefit of up to 75% of your income to replace your lost earnings while you recover
Most Income Protection policies offera range of waiting periods before youstart receiving your insurance benefit(with options normally between 14 days and two years).
You can also choose from a range of benefit payment periods, with maximum cover generally available up to age 65. A financial adviser can help you determine whether you need Income Protection insurance. They can also review your insurance needs over time to make sure you remain suitably covered. If you’re in any doubt about the importance of protecting your income, the table below shows how much you could earn by the time you reach age 65.
For example, if you are currently 35 and earn $80,000 pa, you could earn around $3.8 million before you turn 65. Isn’t that worth protecting? To estimate your future earnings capacity, a calculator can be accessed at mlc.com.au
How much will you earn by age 65?
| Current income (pa) | Age Now | |||
|---|---|---|---|---|
| 25 | 35 | 45 | 55 | |
| $40,000 | $3,020,000 | $1,900,000 | $1,070,000 | $460,000 |
| $60,000 | $4,520,000 | $2,850,000 | $1,610,000 | $690,000 |
| $80,000 | $6,030,000 | $3,810,000 | $2,150,000 | $920,000 |
| $100,000 | $7,540,000 | $4,760,000 | $2,690,000 | $1,150,000 |
| Assumptions: Income increases by 3% pa. No employment breaks. Figures rounded to nearest $10,000. | ||||
Tips and traps
- When choosing a waiting period for your Income Protection insurance, it’s important to take into account any sick leave and related benefits provided by your employer.
- Income Protection insurance premiums will generally be lower if you choose a longer waiting period and a shorter benefit payment period.
- It may be more cost-effective over the longer term if you pay level premiums, rather than stepped premiums that increase each year with age (see Strategy 8).
- If you take out Income Protection insurance in a super fund, you can arrange to have the premiums deducted from your investment balance without making additional contributions to cover the cost. This can help you afford insurance if you don’t have sufficient cashflow to pay for it outside super.
- If you are the primary income earner, you should also consider insurances that can provide a payment to clear your debts in a range of circumstances (see Strategy 2) and enable your family to meet their ongoing living expenses if you pass away (see Strategy 3).
- If your partner is not working, you should consider insurances that can provide a payment to cover medical, childcare and housekeeping expenses, if they become critically ill or die (see Strategy 4).
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Successful investing is not just about the allocation of your funds. It is about finding the best team to assist you get where you want to go. In mortage broking Tracey from my experience, is the best, because she treats her clients as individuals, understands their needs, and works hard for a solution. A rare breed!
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Hi, I just wanted to let you know how appreciative Hermione (Harry) and I are of all your efforts in regards to arranging our finance for our new house in Mosman Park. Thank you for taking the extra time to explain the processes with us and a huge thanks for always keeping our best interests in mind. To have someone like yourself looking after us and always keeping us informed made the transition period between houses so much easier than it could have been. Your continued support is just awesome…
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