Insuring your most important asset Part 1
You earn a good income, you are paying off a house, your vehicle is late model and you are starting an investment program. Your financial future is looking good.
Have you asked yourself what would happen if you were unable to work for several months? What would you do if your paid sick leave ran out? How would you pay for your mortgage or rent, food, utilities, medical bills, and personal loans? The stress of such financial concerns can hinder your recovery considerably.
Your first level of protection is your accumulated sick leave from your employer. If you have been with your employer for some time without taking sick leave, you may have a number of weeks of paid leave available and this is a good buffer.
If you are off work as a result of an accident at work, or on your way there, Workers Compensation will cover you. Workers Compensation will pay the lesser of your normal salary or Average Weekly Ordinary Times earnings, currently $1243.10 per week. However, only 25% of long-term injury or illness is work-related, the remainder is leisure, sport or home-related.
Income Protection Insurance is probably the most important part of your insurance program.
If you are unable to work for more than a specific waiting period as a result of sickness or accident, insuring your income means that you will continue to have money coming in. Income insurance cover pays you up to 75% of your usual salary (although there is often an upper limit applied to this) until you are able to work again. Cover can apply for two years, five years or until age 65 – it depends on the options chosen.
The premium payable will vary according to a number of factors: your gender, your occupation, whether you smoke, any medical conditions you may already have, and the options you choose for waiting period and length of cover. However, it is generally accepted that it will cost around one week’s salary to be insured for one year. And because any payout you receive is considered to be income (it is, after all, a replacement income), the premiums are usually tax-deductible, making the after-tax premium even more attractive. More detailed information on income protection will be provided in Part 2 of this story.
Trauma Insurance covers you if you are diagnosed with cancer, heart disease or a whole host of other medical conditions that will require significant outlays to change your living conditions and pay your medical bills. You do not need to be permanently disabled to receive a payout under Trauma Insurance.
Most superannuation funds have Death and Total and Permanent Disablement Insurance (DTPD) available at very attractive premiums. If you take this insurance as an option when you join the fund, there are automatic acceptance limits available that mean you will not need to have a medical examination to be covered. If you do not take this option when you join, but you later decide that you want DTPD cover in the fund, the insurer will probably require you to have a full medical.
You must be off work for more than six months before you can claim a Total and Permanent Disablement (TPD) benefit and two independent medical practitioners must certify that you are unlikely to return to work. Even then, the definitions of TPD for insurance are important and range from “unable to work in any occupation” to “unable to work in your own occupation”. Depending on the definition in the policy you may not be able to claim an insurance benefit, because although you are unable to work in your own occupation, you are able to do work of some description and are not deemed to be totally and permanently disabled.
DTPD cover can also be held outside a superannuation fund and here you have more control over whether the insurance definitions suit your circumstances. The cost of premiums for DPTD and Trauma Insurance are not tax-deductible.
Remember, claiming against insurance always takes time and you should ensure that you have reserves available to pay expenses in case of sickness and accident.