You are ill and cannot work for 6-12 months, suddenly no income...
Monday, 1 November 2004
A contractor’s ability to earn income is his or her greatest financial asset.
Statistics show:
- Every working Australian has a 1 in 3 chance of becoming disabled for more than 3 months before turning 65 (Institute of Actuaries of Australia 2000).
- More than half of all serious accidents happen outside of work, so workers compensation does not apply (Australian Bureau of Statistics, National Survey 1995).
As a contractor if you cannot work because of a short or long term illness or injury, you will have to consider how you will cope financially.
Income Protection Insurance
An income protection policy can protect a contractor if they cannot work due to sickness or injury. The income paid from this type of policy allows a contractor to meet ongoing commitments and maintain a similar lifestyle prior to not being able to work. On claim, monthly income payments are made after a waiting period and benefits are paid up until recovery or the expiry of the benefit period.
10 useful points on Income Protection:
- Premiums are based on age, gender, occupation and whether you smoke;
- Stepped premiums rise as you get older, level premiums are more expensive to start but have no age based increases in the premium;
- Women tend to pay more because of a higher incidence of disability;
- Premiums are lower for white collar workers because of the lower risk of injury;
- Know the difference between ‘agreed value’ and ‘indemnity’ policies;
- Savings can be made by taking a longer waiting period;
- It is important to have a policy that is guaranteed renewable;
- Consider a policy that has a broad definition of disability and a benefit period to age 65;
- Ensure the benefit amount is indexed for inflation and indexed while on claim;
- Premiums are tax deductible but benefits are taxable as income.
Darren Conway is financial planner and insurance adviser with The Southern Cross Financial Group.
Darren Conway (darren@tscfg.com.au)
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How about just being female?Does income protection insurance cover you if you have a child? I am facing losing a full time job as there is not enough childcare available. I get a measly Family Allowance which doesn't even cover the groceries. Just how am I supposed to live on that? Suzanne Day, 11/01/2004 11:02:47 PM
income protection & childcareHi Susan. Unfortunately, income protection doesn't provide a benefit because you are off work to look after your child. Simon Simon Mitchell, 11/19/2004 04:52:42 PM
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