This week I consulted with a 36year old electrician. Outside of work he had a spontaneous VF arrest, thankfully witnessed, had bystander CPR and early defibrillation. He now has a implanted defibrillator. This has saved his life however he is now unable to work in his usual occupation of hands-on electrical contracting. He was smart and had income protection insurance which is now paying for his families needs (and had been for the prior three years) while he re-trains.
Why income protection insurance?
Income protection insurance is an essential back up for your greatest asset – your ability to work. Is your car insured? Is your house or at least contents insured? These amounts may only be $20k to $1m in value you are protecting. Your income could be $5m -$10m over the span of your working life. Isn’t that worth protecting?
Now is the time to apply for income protection insurance before you develop any medical conditions or anything that might preclude you from being eligible for insurance. This income protection insurance is your pay if you are unable to work. The White Coat Investor suggests that 10-20% of doctors are unable to work at some stage in their life and Australian insurer TAL has reported on the types of problems people claim insurance for.
What triggers income protection insurance?
Being unable to work due to illness or accident. IP does not cover redundancy or not being able to find work and would not have covered people in the 2020 Covid19 job losses unless the person was actually infected with Covid.
When establishing the insurance you choose a waiting period. The longer the waiting period, the lower the yearly cost – however you will need to have an emergency fund/money in mortgage offset/family support to get you to the waiting period. Generally these periods are in 30day chunks – 30, 60 or 90 days. if you can wait the 3 months, premiums will be lower. When claiming you will need evidence of your condition and a consideration of when you will return to work, there are forms for you to complete and you treating team.
Inside superannuation or outside?
Income protection can be bought inside your super, like life insurance or outside. I have mine outside as IP is a tax deduction against income which is less useful inside super. If I do need it the money will be easier to access rather than being trapped in super and needing to meet the criteria for superannuation withdrawal. In comparison my life insurance is inside super as this is not a tax deduction and if life insurance is being collected I am dead so the superannuation assets flow to my defined beneficiaries as tax-free lump sums. Ideally your IP should be for your own occupation – if you have a CVA and cannot work as a doctor, the insurance cannot cast you off to work as a sales assistant. Superannuation IP policies tend not to have this own occupation stipulations and so may be less protective for you. However some protection is better than none. I you already have some IP inside super and have subsequently developed medical condition, you may not be able to acquire any insurance outside of that initial policy – something is better than nothing.
Which company?
You can make a direct application to an insurer or use an insurance broker. I have done this three ways- organising my own as a new graduate, then through a financial planner (my most expensive insurance, possibly over-insured) then later swapping to one organised via a broker.
Level or Stepped?
Premiums have been shooting up in Australia due to changes the insurance lead body is forcing to make insurance more sustainable. Level premiums should be the same with CPI increases, they will cost more initially but not increase a lot. Stepped will be lower cost to start then increase later as your risks of claiming increase.
Take action!
If you do not have IP, start applying now before something happens. I harass all the registrars that flow through our practice and you need to get onto this now. Take some concrete action and apply today.
