Odds against many who bet on long-term health
In this week’s insurance report Gary Kleyn considers the need for income protection insurance.
CREDIT card debt, home mortgages and other living expenses mean that, for many employees, an investment in income protection insurance could be the difference between survival or bankruptcy in the event of illness or accident.
Research shows that serious injury or illness could put an employee out of the workforce for an average duration of at least three months.
The National Health Survey compiled by the Australian Bureau of Statistics shows that each working Australian has a one in two chance of being disabled for three months or more some time in their working life.
The ABS also found that more than half of all serious accidents happen outside work, where workers compensation does not apply.
Newly released research undertaken by the National Centre of Social and Economic Modelling (NATSEM) for AMP found that half of all Australians over 30 will be diagnosed with a serious illness or disability, yet just 10 per cent have adequate financial protection to safeguard their investments and families.
AMP managing director for Australian financial services, Craig Dunn, said people often had to return to work before they were ready or had to sell assets to remain afloat financially.
“So while Australians are living longer, the evidence from this report shows that more of us are living with disabilities,” he said.
“The fact that most people are not covered in any way by income or crises insurance is a very real issue that affects Australians and how they manage their income and wealth.”
Mr Dunn said part of a responsible, quality financial plan should include an element of risk protection, including income protection insurance.
Income protection insurance enables the employee to meet their financial commitments by providing regular payments of up to 75 per cent of the current income until the employee is able to return to work, or in some cases until they reach the age of 65.
An additional protection product is available for the self-employed providing cover for the operating expenses of the business.
While people readily seek insurance for assets such as a house or boat, the most valuable asset a person often has is their income. It is estimated that most people earn around $4 million over their working life.
Some policies pay on an agreed value per month while other policies are an indemnity product.
With an agreed value, the insured party is paid a monthly sum settled at the time they take out the insurance.
Indemnity cover is normally about 20 per cent cheaper than agreed value. The income paid is determined at the time the claim is made.
One thing in favour of income protection insurance is that it is tax deductible, although the payments are subject to tax for employees.
Premiums are generally deter-mined by age, health and gender, whether the individual is a smoker, the occupation and how long the person is prepared to wait for their first payment.
The Money Management website at www.moneymanagement.com.au gives a useful guide for those considering taking out income insurance.
It says that, unlike life cover, women pay more for income protection insurance than men because, historically, women have made more claims.
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