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What would happen if your income stopped?
18 October 2016

Insuring your house, furniture, contents and car is almost second nature to the majority of Australians. Yet all too often people fail to adequately protect what is probably their most important asset, their ability to produce an income.

Your income supports the lifestyle you have worked hard to achieve and for most of us that means the typical costs of living such as: 

  • Rent or mortgage 
  • Pay TV
  • Groceries
  • Education
  • Electricity
  • Phone and internet
  • Car loans and credit cards
  • Clothing
  • Travel
  • Entertainment

And of course if you run your own business, there will be costs associated with that as well. 

Stop for a moment and consider what would happen if you weren’t able to work:

  • For a month?
  • For three months?
  • For a year?

How would you cope? How would your loved one’s cope? How would your business cope?

FACT: Whether you are a 25 year old carpenter sharing a flat with some friends, a 45 year old professional supporting a family, or a 55 year old small business owner, your inability to earn an income could be devastating. 

The risk is real

There are over 2.6 million people under 65 years of age in Australia with a disability potentially impacting on their ability to work. Every working Australian has a one in three chance of becoming disabled for more than three months before reaching retirement age.

 If you think it’s only serious injuries and illness that can prevent you from working, think again. Glandular fever, broken bones or back problems may not be life threatening, but they can keep you off work and they can happen to any of us, at any time.

Common myth: “Workers’ compensation will cover me”. Workers’ compensation will only cover you for accidents or injuries that occur during working hours or for an illness that is a direct result of your employment (if you are self-employed you may not even have worker’s compensation cover). 

Even if your illness or injury is covered by workers’ compensation, benefits are capped under the different state regulations, in terms of both the amount of weekly benefit and the length of time they are payable for. For many people, the benefits payable under workers’ compensation will be well short of their normal weekly income.

A new way of thinking about your options

Option 1 – the standard remuneration position

100 per cent of your income is received while you are well and able to work. When you’re disables and can’t work, other than sick leave, you get 0 per cent of your income. 

Option 2 – the alternate remuneration

Depending on your personal situation, you effectively receive around 98 per cent of your income while you are well and able to work. When you’re disabled, after your waiting period , you get paid up to 75 per cent of your normal income.

So what enables option 2?

The availability of income replacement insurance that delivers benefits in the event of personal illness and injury.

What makes income replacement insurance even more cost effective?

The fact that premiums for this cover are generally tax deductible, irrespective of whether you are an employee or self-employed.

If I choose option 2 how will my personal situation affect the percentage of income I receive?

Your premium and benefits will be impacted by the following:

  • Your occupation
  • Your health age and gender
  • The waiting period you decide on 
  • The benefit period you choose.

Let’s look at some examples:

Sam Sample is 35 years old and earns $80,000 per annum. Illustrative costs for protecting 75% of his income, with a 30 day wait. Claims indexation and age 65 benefit period are shown.

OccupationMonthly premium (before tax deduction)Yearly premium (before tax deduction)Yearly cost as a percentage of income
Accountant (CPA)*$82.82$919.371.1%
Clothing shop proprietor$143.65$1,613.192.0%
Plumber*$196.01$2,205.472.8%

*Accountant is degree qualified; plumber is a trade qualified domestic plumber working at heights of 10m or less. Premium rates are based on Zurich Income Replacement (comprehensive) as at 1 March 2013 and are subject to change. Premiums are based on NSW rates.

What choice will you make?

Advantages of option 2

  • The things you have worked so hard to accumulate are better protected should you suffer an illness or injury and are no longer able to work.
  • Your dependents can rest assured their living essentials have been secured should an illness or injury impact your ability to earn an income.
  • If you do suffer an illness or injury you can spend more time recovering and less time worrying about your finances. 

The premiums are generally tax deductible, making them more affordable.

Disadvantages of option 2 

  • You’ll spend around 2 per cent of your annual income on the premiums for Income Replacement Insurance when you are well.

How long could you survive without your income?

Here’s a selection of income replacement claims paid and their duration. How would you cope in these circumstances?

AgeCauseOccupationDuration
23Fractured ankleCement renderer59 days
30Burkitts lymphomaDentist150 days
33Fractured femurTiler211 days
34 DepressionReal estate agent34 days
38Cardiac arrestCFO395 days
45 Head fractureIT consultant242 days
46Prostate cancerGlazier241 days
50Car accidentTeacher272 days
51CancerOperations manager364 days
61Hip fracturePainter and decorator258 days

It makes sense, so what’s your next step?

A specialist risk adviser can assess your needs and tailor a solution to your individual circumstances. Our insurance department have access to a wide range of cover options from some of Australia’s leading insurers and can help ensure your protection plan is tax effective and affordable. Contact our insurance team today on 1800 804 296. 





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