Since our income is generally seen as our biggest asset, it is extremely important that this asset be protected. Income protection (also known as “salary continuance”) is designed to replace income in the event of illness or accident, which means less strain on savings, investment income and other assets.
The maximum permissible cover is typically 75% of your personal exertion income, including salary sacrificed superannuation contributions. Benefit periods for this type of insurance vary and impact the level of premium you pay. Typical benefit periods range from 2 years, 5 years, to age 55, 60, 65 and lifetime. The waiting period before benefits are paid will also alter the level of premium that applies. A short waiting period is generally designed to suit those who could be in financial difficulty very quickly if their income stream were to stop.
We consider our clients’ sick leave and annual leave entitlements in deciding the appropriate waiting period. Premiums for this type of insurance are generally tax deductible, and the regular income benefit will be taxable as well. We target the level of cover at an amount that at least supports our clients’ ongoing living expenses and current lifestyle, while allocating a portion to meeting their retirement savings objectives.