Income Insurance - what level?

[mixedup]

Hi,

I'm considering income insurance to complement getting into IP. Seems to be a good idea to mitigate risk. I've just realised my Super gives me income protection based on:

• 75% income
• wait time only 2 weeks (i.e. from application to obtaining)
• for up to 2 years (after this they assume you would then be in a disability situation)
• doesn't cater for retrenchment

This would be all one would expect in an income insurance arrangement no? Do those of you would take up income insurance specifically to cover risk with your IPs do you obtain anything more than this?

 

[Nougati]

Hi mixedup,

the type of policy that you have is called salary continuance. they are basic income protection policies that cover you for two years. more comprehensive policies (more features) cover you until age 60 or 65.

you can only insure up to 75% of your employment income, so you cannot insure passive income, and it also does not cater for redundancy, etc.

It is purely to replace your income when you are ill and unable to work.

 

[mixedup]

so this is all one needs to ensure you can continue to pay off your IP loan commitments then really? (i.e. I just have in mind Steve McKnight's book and his recommendation that once your are in the IP game getting income insurance is a good way to mitigate the risk of not being able to make the loan payments if you get sick)

 

[Nougati]

Depends...remember that if you are negavitely gearing, you may require more than 75% of your income to meet the repayments.

Worst case, you may also have medical costs, etc.

I consider income protection to be the bare minimum, other add-ons include trauma cover and death/tpd cover (for those you leave behind).

Like many of these people on the forum say, it is also wise to keep a buffer ( e.g. LOC).

 

[Mr. Fabulous]

Everything Nougati says is correct, it's also worth checking out with your superannuation fund whether their insurer is offering (or will offer in the future) income protection to age 65 through super. I know that a couple of the insurers (and super funds) are offering this now, it might be worth checking out to see if yours is eligible or looking around for a fund that will do it, as obviously you will be covered to age 65 and not have to pay premiums out of your own pocket.

Mark

 

[Nougati]

Mark,

You are right, some super funds have started offering this.

From a tax point of view though there is no difference with having the insurance in super, as it is tax deductible anyway. However, I do take your point re the cashflow issue, although you should be able to get decent cover for under $1,000, which is a small cost.

The problem though with having this type of insurance in super is that if you stop working with a particular employer, in some cases the insurance cover will cease.

You then have to reapply when you join another super fund and go through all the underwriting (if your health is not good at that time, you may not be able to get it anymore or it may be more expensive). Once you have retail income protection though, it is guaranteed renewable, and portable (i.e. not linked to a particular employer).

 

[Modal Harmony]

I work as a Mechanical Engineering Contractor with my own P/L company. I took out Income Protection insurance in 1995. Last year I had a tumour on my appendix which necessitated removing the appendix plus a section of large intestine (caecum). My insurance recognised this as a trauma incident and provided a very nice $25k!! Mind you, I wouldn't recommend contracting this condition since I had complications and a 1 week hospital visit turned into 3 visits & 5 weeks off work!!

We have 5 IP's and the SANF with having this insurance (plus its practical assistance last year) was well worth the premiums paid.

 

[DavidMc]

Hi Mark,

Do you know of any income insurers that consistently pay out as they should?

Have you experienced any that haven't?


Regards,

David.

 

[Nougati]

David,

best to find a reliable broker, as they deal with claims all the time and know from experience which ones pay up more easily than others.

 

[DavidMc]

I dunno.

Brokers are PAID to sell insurance. Probably not the best people to ask if the insurance is any good or not.