Income protection is often overlooked when the going is good, but sometimes life’s unexpected bumps can trip you up leaving you in a vulnerable position. An accident or illness can have serious effects on your finances and while you’re on the road to recovery, meeting daily expenses and necessities can be a major strain on your finances.
Having income protection insurance provides a financial safety net in the event that you are unable to work due to an accident or illness. But before taking out an income protection insurance policy you should consider how you want to structure your policy for maximum benefit.
There are three options you can choose to structure your income protection insurance policy.
All options are tax deductible but all three offer different outcomes.
- Individual Funded Income Protection Insurance
- Superannuation Funded Income Protection Insurance
- Company or Trust Funded Income Protection Insurance
This means the person taking out a policy is responsible for making regular payments from their wage or salary to the insurance provider. You will need to factor in how these contributions may affect your cash flow and whether you can maintain payments without adversely affecting your lifestyle.
Choosing to pay for income protection insurance via your superannuation can be a cost and tax effective strategy. Although more complicated, income protection insurance inside super is generally cheaper as you are accessing wholesale rates. But paying insurance premiums through your super fund will eat away at your retirement savings, so you will need to consider topping up with a Government co contribution or salary sacrifice.
Plus there are a few restrictions for income protection insurance funded through your super. Currently income protection payouts do not include any trauma payments and most industry super funds restrict benefits for two years only. It is best to check with your super fund provider or speak to one of our Financial Planners to see if this is the right strategy for you.
Company or family trust funded income protection is when the business pays the insurance premiums to provide income protection benefits to its beneficiaries.
Setting up a company or family trust in the first place is to ensure assets and income are protected if family or business circumstances change. The main purpose of setting up a trust is to minimize tax and that the trust beneficiaries also benefit from low tax rates.
One of our financial planner’s can help you structure the right income protection insurance policy that’s the most economically viable for your individual circumstances.
For peace of mind and security, protect your income from life’s unexpected bumps.