Income Protection Insurance

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Hi All,

For those of you in Aus what are your thoughts on Income Protection Insurance? Necessary evil or waste of money?

I have been paying for it for the last few years whilst I was doing contracting work but have lately been contemplating binning it.

Thanks

[HansaPlease]

If you do it through your Superanuation, it costs a lot less than if you, say, take out a policy with ANZ. And it doesn't affect your cash flow as such. That way you're not paying through the nose.

In terms of whether it's worth it - like any insurance, it's only ever worth it if something happens and you make a successful claim.

I fear that like any insurance company, they will try to squirm out of any payment should something happen as best they can.

[RYLC]

Please please please make sure you have income protection insurance. My husband is an engineer and since RSA days we have always had income protection insurance so when we moved here we found a broker and got all our insurances set up. I also semi begrudged paying though.

Fast forward seven years and hubby got an auto immune disease that has stopped him working - completely for about two years. Now he only works part-time and boy oh boy are we glad we have the insurance because it tops up his pay to an engineer's salary. With two primary school age children I can only work part-time and was never going to earn an engineer's salary even if I could work full time.

Although more expensive, we were advised to have a policy separate from super, to make sure it paid until retirement and that it was indexed each year to grow with inflation.

I fear that like any insurance company, they will try to squirm out of any payment should something happen as best they can.

This is why it's important to go through a broker for this because they have done many claims before and it's their job to handle the claim and guide you.

[AndreaL]

OK, we had income protection through our superannuation and I cancelled that one, because although you do pay less ( because of the number of policies) it is being deducted from your superannuation, plus that income protection is not tax deductible (at least it wasn't in our case) so I have switched to one I believe is tax deductible.

The Australian Tax Office allows income protection to become a tax deductible component of your income if it is paid under the policy to replace the loss of your income. In contrast, the ATO will not consider it as tax deductible if it is paid under a policy meant to compensate a physical injury, death, or accidents. These non-tax deductible policies include life insurance, Trauma, and TPD insurance. Moreover, income protection policies that are not held outside your superannuation are also not also tax deductible.

That said, I have a claim in for income protection at the moment and am getting the run around......................but you almost expect that with insurers.

So, yes, if you can get income protection that is tax deductible, and is not a combination of a death and disability policy, then why not.

[Gerhardk]

Please note, this is not advice. It is really similar to car insurance, you are paying a premium and betting something will happen (insured event), the insurance company is betting nothing will happen. Overall, insurance companies make a lot of money since a lot of people claim less than they pay premiums (say during their lifetime). This is probably the case for the majority, a minority claims more than their premiums. Overall the actuarial calculations used, based on your age, conditions, disclaimers etc favours the insurance company.

With hindsight, had I saved all the money I paid on insurance and self funded the accidents and income losses, I would have a lot of money in reserve. But, for the few unlucky ones, the calculation will be different. If you decide to cancel, I suggest you build your own reserve fund (based on premiums you would have paid) and do not touch it unless needed for the event. At least in Australia there is Centrelink and Medicare and disability grants etc, so cancelling it is a different decision than in SA.

As far as I am aware, as Andrea noted, you must pay (not via super) income protection to claim the premiums for tax but keep in mind the payout (if not a lump sum) will be taxable. Generally death and disability better to pay via super since no tax benefit.

[AndreaL]

My hubby is in mining, it's high risk, we pay a lot, we have through superannuation the Total death and disability payout and also have a separate policy which is only income protection, as my hubby has been on leave without pay for 4 months I desperately need that money but there seems to be some issue with when he was added to the policy. Centrelink has been an absolute nightmare, I can only deal with them by phone as we don't have a local office and am still waiting for a measly sum from April

Just today, we have lost another of our brothers (union) at Anglo's Grasstree mine, overcome by gas, I'm devastated. The only good thing is that this is when rank and file pull together to support families and each worker of the union will give a days wages to the family.

[Bronwyn&Co]

My hubby is in mining, it's high risk, we pay a lot, we have through superannuation the Total death and disability payout and also have a separate policy which is only income protection, as my hubby has been on leave without pay for 4 months I desperately need that money but there seems to be some issue with when he was added to the policy. Centrelink has been an absolute nightmare, I can only deal with them by phone as we don't have a local office and am still waiting for a measly sum from April

Just today, we have lost another of our brothers (union) at Anglo's Grasstree mine, overcome by gas, I'm devastated. The only good thing is that this is when rank and file pull together to support families and each worker of the union will give a days wages to the family.

Andrea I really hope you can get this sorted out soon.

I have also found Centrelink a nightmare. I can't understand people who say they just walked in and some helpful person sat there making suggestions about what they could claim! When I took my son there as a new student, on 2 separate occasions this dragon-lady wouldn't even let us in the door. She insisted everything must be done online which turned out to be impossible. The website is rubbish if your case is even slightly 'different'. And we have a Centrelink 15 mins away. You must be getting mad.

I am thinking of you!!

Edited May 7, 2014 by Bronwyn&Co

[Johnno]

I have no personal experience with centrelink but a close family friend lost their job in Sept 2012. After 4 months and dozens of job applications and only days from Xmas I insisted that he gets assistance from centrelink, afterall he's now an Aussie citizen and has been laying taxes all these years. Being a very proud person it took sound effort but there was no income, just bond and car payments and the daily living expenses going out so he put his pride in his locker and went to the local centrelink office. For whatever reason he did not qualify for any assistance, something to do with previous years income being above a threshold. He explained that he bond payments etc, he was advised to speak to his bank about his situation. By juggling credit cards he paid every bill and in February he landed a job and then started paying off credit cards.

Friends and family back in SA all seem to believe that if you fall on hard times in Aus the government sends you a pay cheque, how wrong!!!,

Ps, AndreaL, I really hope all goes well for you guys,

[Gerhardk]

I don't think income protection covers situations when you lose your work or resign, there are different policies linked to your bond / car payments that protect against things like retrenchment. Again insurance so same principle applies.

We found Centrelink in Joondalup (WA) as well as the office in Perth really easy to deal with. Online is great and we do almost everything on there although it is limited to child care / baby bonus etc. Government grants seem to be capped at family income of around $160k/$180k per annum. I did not know there is a limit of whom can access it but I guess the argument is that if you earn say $300k for a couple of years, you are so far ahead of the average ($70k ish??) that you loose that benefit.

[AndreaL]

I think if I actually went into a Centrelink office, I would have had more luck, but we are regional and only have an agency, basically a telephone, computer screen and fax machine through to Centrelink, so I have been doing most of it on the phone......................and waiting...................but yesterday I managed to get a lovely lady, very helpful, she advised me to install the Centrelink Express plus app on my mobile and assured me it would make things so much easier.

I asked her if she could please try and process the payment quickly as I am desperate and she said she would.

Well, using my handy little mobile app, it seems as if I am to get $460.90 .................it is not in the bank yet, but woohoo................8 years as a tax payer and this is my first "ask".

So I am to receive Newstart allowance and go to my jobseeker link next Wednesday, apparently they draw up a training and work finding plan and you have to work through it to prove you are looking for work, gosh exciting and nerve racking.............for a 40 something year old stay at home Mum anyway, but perhaps something positive will come of it and at least it gets me out there.

[Mara]

Good luck Andrea... I hope it all works out for you!

[HansaPlease]

Best of luck, Andrea! Really hope you find something!

[Nev]

Good luck, let us know how it goes

[Gerhardk]

A bit off the topic and I am not sure what you will be doing Andrea, but have you heard of the NEIS scheme? I attach a link below.

http://www.missionaustralianeis.com.au/

Good luck

[AndreaL]

Excellent link, I'll go through it thoroughly, I'm always amazed at the sheer amount of support services available in Australia.................today on the radio (given that it is domestic violence month) there was a service for women who had to leave a domestic violence situation that housed their pets until they were re-homed!

[Bronwyn&Co]

Andrea you strike me as extremely competent & methodical, with a high EQ. I know you live in a smallish town, but I bet you will find something great soon

[Bob]

If a company is any good, it will have some sort of income benefit for its workers if they are taken ill.

This should increase each year so that after 10 years or so with the same company, your income stream won't suffer too much if you fall down a cliff and break both legs, not able to walk for six months.

On top of this, you can opt to take insurance out through your own superannuation fund which insures all its members by getting a "bulk" insurance deal for them, and passing on the "bulk insurance" rates to their members if they want to take any form of personal insurance out.

This is the cheapest form of life insurance I know of, far cheaper than taking out an individual life insurance policy with a commercial crowd such as AMP or the local bank.

As far as getting a tax rebate is concerned, it all depends on what tax bracket you're in.

Some folk are only in a 30% tax bracket (those earning up to A$80 K a year), so the most return you'll get from the tax office will be 30% of your insurance premium payments. It may not be so cost effect to go thro a commercial life insurance company, even if you do get a tax rebate that way. You still have to do your homework and factor in how much tax you pay, what tax bracket you're in (20% . . . 30% . . 40% . . . 45%) to see if you are ahead or not, as to whether it's cheaper in the long run to get life insurance / income protection thro a commercial life insurance company or thro the life insurance component in your superannuation.

Edited May 8, 2014 by Bob

[Doran]

Talking about insurance, I've been told by a few people that if you have two (or more) life insurance policies, only one of them will pay out in the event of death, injury or whatever the case may be.

Anyone else know about this?

[Bronwyn&Co]

Talking about insurance, I've been told by a few people that if you have two (or more) life insurance policies, only one of them will pay out in the event of death, injury or whatever the case may be.

Anyone else know about this?

Hey Doran

That doesn't sound likely. I wanted to increase my life cover and the insurance company issued a second policy to make it up to the total.

So I'm pretty sure both will pay out.

[SurferMan]

Mostly you are required to declare both policies, so that they can check for claim overlap. Very common and legally required in SA. I have had more than one policy, and they always cross checked for over claiming. Think about it....Policy 1 for household theft. You claim 100K for theft items, and then you go to policy 2...for household items, and claim another 100K....for the same stuff. Cant be. Sort of a insurance double jeopardy...

[AndreaL]

Andrea you strike me as extremely competent & methodical, with a high EQ. I know you live in a smallish town, but I bet you will find something great soon

Ha Bronwyn, perhaps so, but also scatty and slightly eccentric................they don't call me chaos woman for nothing......lol.

Re life insurance policies, people should look into them carefully. Some policies only cover accidental death, some are disability policies, and different policies attract different rates of tax, you have to declare all policies.

You may find answers to your questions here http://www.lifeinsurancefinder.com.au/post/life-insurance-needs/having-multiple-life-insurance-policies/

[Sunnyskies]

Doran you can have more than one life policy as long as you pay the premiums.

The rule applies to personal property insurance to ensure that you don't profit from a lost or damaged asset. I think the rule is that if you have more than one policy the insurer is only liable for a pro rata portion of the total loss.

Not sure what the rule is on income protection. Pretty sure you can have more than one policy.