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Covering all bases

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Most people have insurance of some sort – car, house and health insurance are the most common. You can also insure to provide a lump sum when you die so that your family can pay back any debts and have capital to move on with their lives without you.

One of the most important – and most overlooked – forms of insurance is Income Protection Insurance. If you are unable to work, what do you do when your paid sick leave runs out? How will you pay for your mortgage or rent, food, utilities, medical bills, and personal loans? What happens if you are unable to work for several months? The stress of such financial concerns can hinder your recovery considerably.

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 usually 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.

What about Workers Compensation?
Workers Compensation insurance covers you for work-related injuries only, and only 25% of injuries are related to work – the remainder are leisure, sport or home-related. Not only that, but Workers Compensation usually only covers you for Average Weekly Ordinary Times Earnings, currently $1243.10 a week. Relying on Workers Compensation insurance to replace your income if you are unable to work is a very large risk to take.

Disability Insurance in Super
You may think that you are covered because you have Disability Insurance attached to your superannuation fund. However, Disability Insurance requires that you have been off work for more than six months and, depending on the definitions in the policy, are unlikely to be able to return to work in either your own occupation or any occupation for which you are suited by education, training or experience. Disability Insurance therefore applies if you are so severely disabled that you must change your entire lifestyle.

Trauma Insurance
Trauma Insurance covers you if you are diagnosed with cancer, heart disease and a whole host of other medical conditions that will require significant outlays to change your living conditions and pay your medical bills.

Covering all bases with Income Protection Insurance
Income Protection Insurance covers the gap. There are a great number of options available with different waiting periods and length of cover, and automatic indexation of benefits. The options you choose depend on your circumstances.  

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 in your hands (it is, after all, a replacement income), the premiums are usually tax-deductible, making the after-tax premium a small price to pay for peace of mind.

Please speak to your Bongiorno adviser if you wish to review your insurance program to incorporate Income Protection Insurance.

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