Income protection insurance

[BlackSpider]

Wife and I are both covered.
I don't see why not, premium comes out of super, same with life insurances premiums.

Never really count Super funds in net worth, even though it's probably a considerable sum.
It's just too far away to be claimable for us.

 

[wobbycarly]

My IP costs me about $40/mth, and of course, it's tax deductible. 2 month waiting, covered to 65 yo, 70% income, any industry (or whatever it's called.) I reckon that's cheap!

Some policies only cover you if you can't work in your specific industry, so if you're a tradie and you can't work in that job, but could go into admin, they won't cover you.

 

[BV]

Some policies only cover you if you can't work in your specific industry, so if you're a tradie and you can't work in that job, but could go into admin, they won't cover you.

You make it sound as its not worth insuring.
These are options you pick yourself when you're filling out the form. Ofcourse if you only want to work in your own occupation the monthly premium will be higher.
If you tick to accept other occupation the premium drops.

 

[wobbycarly]

You make it sound that its not worthy insuring.
These are options you pick yourself when you're filling out the form. Ofcourse if you only want to work in your own occupation the monthly premium will be higher.
If you tick to accept other occupation the premium drops.

Actually, I didn't know what I was trying to say!

Let's try again. If you are in a (high-paying) specialist job, and something happens to you that you're unable to work in that role, but may be able to do something on much less pay, depending on the options you select the insurer will stop paying you.

If you select "own occupation", with the attached higher premium, the insurer will pay the difference (or 70%[??]) between the high-earning job and the lower earning job.

Or something... Advice: Read the PDS.

 

[Spectre]

I wouldnt go without it.
One thing which hasnt been mentioned is that its tax deductable. So you protect your income, your assets with a deduction.

I've seen enough people wish they had it after its been too late... one of those who thought it wouldnt happen to them. The stats are scary.

They'd have wished they'd spent whatever it may have cost - what $100 a month... but I suppose that foxtel or night out at dinner was more important than their future.

(and yeah Obviously I'm biased)

 

[Rolf Latham]

The "You need it" argument is an emotional decision. There are many risks in life you can't insure against. You just need to accept that risk is part of life. No need to feed financial advisers & an insurance industry to reduce only a small part of your risks.

If you spend your life trying to analyze all your risks, you would suffer from analysis paralysis.
.

I am largely self insured on the income side too. Possibly for different reason though.

I can not agree in any way shape or form that such insurance is an emotional decision, and your view does need to be qualified in case someone takes it as "advice", as some no doubt will. Most cant make such a decision as you and I have made. They do NOT have the resources.

Stepping back, so you have a better understanding of my perspective, such business provides less than 3 % of our gross income at this time, so I couldnt give a hoot from that point of view.

When I sit with new investors, one of the things we cover off is what they believe their biggest risk might be.

Invariably, items such as "bad" tennants ( bad covers damage, non payers etc), interest rates, poor location, changes in planning rules, collapse of markets, legislative risk etc all come outout very easily.

Loss of income often needs to be coaxed out, and thats for any number of reasons, some of which are deep seated and quite logical fears

Take a youngish couple with kids, where the majority of income comes from PAYG and a bit of rent.............youd have to be a "brave" person to sit in front of them and suggest they self insure.

We always recommend a client retains cash or equity buffer, but thats geared more around being able to extend waiting periods so that premium costs can be reduced.

I am in the fortunate position to have seen what unexpected loss of income and unexpected early death can do to a family. The emotional side of things is bad enough, but to have these compounded by having to make 'LIFE" decisions based on poor risk planning results in additional immediate stress (which is avoidable) with potential effects beyind the current generation.

Although this type of decision looks simple, in practice it is not .

I will now hop off my soapbox.

ta
rolf

 

[StuartW]

Great post Rolf. I couldn't agree more.

 

[House_Keeper]

What worries me about such insurance is not what it covers, but what it DOESN'T cover.

There are significant risks left uncovered, like losing your job, or divorce, or being caught by one of the small clauses of the insurance contract, or something happening to your kids.

That's why I prefer to have a conservative approach with my finances, leaving room for the unexpected, as I can't insure against everything that might happen. Not everybody is in a position to do that, but maybe they can progressively set themselves up in such a position.

"Income protection insurance" has a nice "sleep at night" factor, but it doesn't cover all the risks that relate to your income by far. It mainly covers the health-related risks.

That doesn't mean it doesn't suit some people. You just need to be aware of its limitations.

 

[Leandro]

What worries me about such insurance is not what it covers, but what it DOESN'T cover.

...

"Income protection insurance" has a nice "sleep at night" factor, but it doesn't cover all the risks that relate to your income by far. It mainly covers the health-related risks.

Surely the same is true for all types of insurance. Do you not obtain insurance for anything?

 

[House_Keeper]

Surely the same is true for all types of insurance.

Not quite.

When you take comprehensive car insurance, you can be confident your car-related risk is covered.

Income protection insurance only covers a small part of your risk of losing your income. I was a bit mislead by the name until I read the fine-print & found out the limited set of circumstances it covered.

 

[StuartW]

Not quite.

When you take comprehensive car insurance, you can be confident your car-related risk is covered.

Income protection insurance only covers a small part of your risk of losing your income. I was a bit mislead by the name until I read the fine-print & found out the limited set of circumstances it covered.

And that's what a good advisor should be pointing out - what a policy does and does not cover. The terms are critical with IP particularly. Some IP can be next to useless. However, a good policy is priceless.

A dental client of ours had an accident playing golf - hurt his thumb. He's fine but his insurer is now paying him $300k p.a. until age 60. He's started an IT business. What do you think of his decision to pay for insurance?

 

[D.T.]

A dental client of ours had an accident playing golf - hurt his thumb. He's fine but his insurer is now paying him $300k p.a. until age 60. He's started an IT business. What do you think of his decision to pay for insurance?

Wouldn't starting a business affect his insurance payments as it proves he's now able to work which is what the insurance was covering to begin with?

 

[StuartW]

Wouldn't starting a business affect his insurance payments as it proves he's now able to work which is what the insurance was covering to begin with?

No. His policy was on 'own occupation' (dentistry) and the policy didn't have an 'other earning' clause (sometimes insurers can reduce payments if you're receiving other income.

 

[bcoombs]

Being a mortgage broker are given access to cross sell mortgage insurance to our clients. I don't believe that we are in a position to properly advise our clients on this. However a quick tick and flick policy is better than nothing for most people.

The last few years I shared an office with a risk/super adviser I was more comfortable referring those few clients that were interested to him. One thing I did notice was that there were very few times that he wasn't organizing a claim. Some of the reasons why were pretty obscure and most people who had insurance and claiming ( or on behalf of ) were quite young. I found it amazing who many males died in their 40's from cancer, blood clots, heart attacks etc. Most were fit healthy blokes who exercised, ate well and had no history of problems.

 

[jokerjoe]

My Insurance Details FYI

Personally I think that anyone with outstanding debts that require ongoing monthly repayments should have this insurance.

My wife and I have Income protection through our Super Fund (Australian Super). It is a two year benefit that will pay us $8,500 per month per policy (similar income level).

Costs me $5.59per week (trade occupation) and my wife $3.04per week (professional occupation)

In my opinion this is a pittance compared to the peace of mind that it provides us.

Joe.

 

[BlackSpider]

Why is it only a 2 year benefit if done through super?

I'm quite sure the wife and I have combined coverage 200k+ until 65 if unable to work again, premiums paid from super fund.

 

[StuartW]

Due to the rules of many funds.

However, you can have a benefit period of longer than 2 years: http://law.ato.gov.au/atolaw/view.h...PiT=99991231235958&recnum=2&tot=4&pn=ALL:::FA

 

[BV]

Why is it only a 2 year benefit if done through super?

It must be that particular policy because mine with Aust Super wasn't for 2 years

 

[mystery]

I have personal experience on why it is very beneficial to take out Income Protection.

My wife became very ill in August last year, .... she is still unable to work and it will be some time before she is capable of doing so, .... although according to the professionals she will recover to 100% which is great news ..... Anyway, I digress:

She took out two income protection policies about 8 years ago... one covered her for the initial 2 years if required and then if needed a second one kicks in until she is 65. She is covered for 75% of her income and as she was an I.T. Contractor ... 75% is still a very good income.

Having these policies in place has allowed her to recover knowing that everything is taken care of. The policies may seem to be expensive, but for that SANF ... I believe they are essential.

I know with one of the policies the costs came out of her Superannuation, but I'm not sure which one, .. the second one we pay by direct debit each month from our savings account.

We had a decent cash buffer in place in case something like this happened, but without the income protection, life would have become very difficult as at some point our savings would have run out. Because of the income protection policies we still have our cash reserves in place and a monthly wage.

We sold some of our IP's that can't be developed in the future like unit's, t/houses etc and we have kept houses on large blocks (we still have a good portfolio of properties). We see this is a third insurance policy whereby we are turning our negative portfolio into positive as a further safety net.

My wife's illness has given us a chance to re-evaluate our wealth strategy and outlook on life, ..... as long as we have enough to be comfortable and live long enough to enjoy it with each other then that's enough for us.

Mystery

 

[birchcorp]

Personally I think that anyone with outstanding debts that require ongoing monthly repayments should have this insurance.

My wife and I have Income protection through our Super Fund (Australian Super). It is a two year benefit that will pay us $8,500 per month per policy (similar income level).

Costs me $5.59per week (trade occupation) and my wife $3.04per week (professional occupation)

In my opinion this is a pittance compared to the peace of mind that it provides us.

Joe.

I agree with the concept of purchasing Income protection for many people(not all, as it can sometimes be a waste of money). But, I do say, that you should always have the benefit paid until you are 65 years of age. If you are going to the trouble of organising this benefit, get the real benefits.

What you will notice, is that most industry super funds only pay for two years. My general advice to people is that often industry super funds are the way to go, so remain in the fund. But, complete a partial rollover form to send your super monies to an insurance company that will pay for the IP up to 65 years of age. This will not come out of your pocket (super monies only), therefore keeping extra money for IP's or like or while having the benefit of IP insurance to 65 years of age.