Many Australians are underinsured when it comes to Income Protection insurance, and NobleOak Life explains the importance of this cover. While you may think you are in excellent health, life has a way of placing illness and injury obstacles in the way and causing you to take time out from your daily routine to recover.
According to an Australian Law Reform Commission inquiry into barriers for older people working, demand for income protection is relatively low across all age groups – and 69% of Australians have no Income Protection insurance at all.
One of the surprising things about the lack of income protection among the general public is that, Income Protection insurance premiums are generally tax deductible – although please check your personal situation with your accountant to confirm if this is the case for you.
Income Protection: Is It Tax Deductible?
While you may think that you are in excellent health, life has a way of placing illness and injury obstacles in the way and causing you to take time out from your daily routine to recover.
Income protection works by providing you with up to 75% of your gross income if at any point you are unable to work for a period of time due to illness or injury. Note that waiting periods apply before the first payment is made.
According to the Australian Taxation Office (ATO), it is possible to claim the cost of premiums for an insurance policy that protects against the loss of your income, however any payment received under such a policy will be declared as income.
Keep in mind that you can’t claim a tax deduction on a policy that is taken out through your super, where premiums are already deducted from your contributions.
Good Income Protection policies are indexed to the rise in the cost of living, or CPI. They generally offer guaranteed renewability – that is, the insurer will renew the policy each year as long as you continue making payments, irrespective of whether your health changes. You should also be able to choose whether to make payments on a monthly or yearly basis.
Protection at different stages
There are some stages of life when Income Protection is more necessary than other, such as when you approach middle age and begin to encounter the kinds of wear and tear that everybody experiences.
You may at some point require surgery. For the period of the surgery and the time it takes to recover, your Income Protection insurance may also help meet your financial gap while off work. If you need rehabilitation after an accident, those expenses you incur are often included as an additional benefit you can claim, as long as you are taking part in an approved rehabilitation program.
It can be easy to go through your 20s thinking that you are not responsible for anyone but yourself. This is the ‘me’ time, when it seems you are invincible. But down the track, if you were to start a family, you realise that more is riding on your income and your health.
Families with single income earners might especially be at risk, but even couples with two incomes may find it hard to meet mortgage payments if one of them has to take time off work.
An Australia-wide problem of underinsurance
Australians love living in their cities, but did you know The Economist Intelligence Unit ranked Sydney and Melbourne in the top ten of the world’s most expensive cities for 2015?
Given this fact, it’s intriguing that more Australians don’t have Income Protection to cover the cost of their lifestyles if they were to be temporarily unable to work due to illness or injury.
Lifewise, an initiative by The Financial Services Council to raise awareness of national underinsurance dilemma reported that only 31% of Australians have to Income Protection insurance. This underinsurance can put families and businesses at risk.
Your income is one of your primary assets, just like your house, car or investment property. Why not think protect it in the same way?
Please note that the information we provide is not advice but general information only.