Let’s face it earning an income is important, it pays for our necessities and allows us to save, invest and build wealth for retirement.
To suddenly find yourself in a situation where you cannot earn your income because you’re ill or injured is a distressing prospect. With no income how are you going to pay those mounting bills, never mind day-to-day expenses?
And if you’re like most Australians, your life insurance policy doesn’t cover for such a contingency. More than likely you’ve opted for a super funded life insurance, which in most cases provides basic standard cover and temporary injury or illness is not included.
But there is a way to bridge this gap in you life insurance cover and that’s with income protection insurance.
Of all the types of life insurance available, the least understood and probably the most essential type of insurance cover is income protection.
With income protection insurance you are assured of an income stream if you’re unable to work because of an injury or illness. Income protection typically covers 75% of your gross salary and paid monthly to help cover expenses while you recover.
Income protection cover is definitely worth considering to protect your savings and investments in the event you’re temporarily unable to work due to illness or injury. Plus it bridges any gaps in your existing life insurance policy, giving you total cover. You have the option of buying stand-alone cover or through your super fund, as most super funds now also provide income protection insurance.
The benefit of income protection through a super fund is that it is less expensive and therefore won’t strain your cash flow. Another benefit is automatic acceptance; you don’t have to endure medical checks and questions. Plus there are no restrictions on occupation, so you won’t be excluded from cover if your job is deemed risky.
Most super funds provide income protection cover for 2 years only, so that puts a limit on how long you can rely on an income stream in the event of an injury or illness. You may need a longer recovery time, but there are super funds that do offer extended cover up to retirement age 65.
Paying your income protection premiums via super may be a cost effective strategy, but you need to realize that those premiums are chipping away at your retirement savings. In order to boost your retirement savings, topping up your super with salary sacrifice contributions will ensure you have a tidy nest egg in retirement.