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Posted on: May 20 2018

What is it?

An insurance policy that will protect 75% of your salary if you were unable to work due to sickness or illness.

Ok, yes you have accrued sick days but do you have enough sick days to cover your income until you retire at age 65 or age 70.

The Income Protection monthly income benefit will assist to pay your living expenses and minimise any financial stress whilst you recover and return to work, or retirement.

How much of your salary can be protected and how is the Income Protection monthly benefit calculated?

Based on a salary of $80,000 including 9.5% Super, it is possible to protect your income for a monthly insurable benefit of $5,000:

Requirement Salary plus super
Annual Stated Income (including Superannuation and bonuses)$80,000
Monthly Stated Income (Annual Income Divided by 12): $6,666
Existing Insurable Gross Monthly Benefit Cover (75% of your Monthly Income) $5,000
As Income Protection premiums are tax deductible, at claim time this income is assessable so as a double check, will income after tax cover your living expenses?
Less approximate PAYG tax at claim time$1,400
After Tax Monthly Income – Is it enough to cover your living expenses and possible medicals?$4,688

Please remember as your income protection premiums generally are tax deductible your monthly benefit at claim time will be assessable income for income tax.

Think of that, if you were unable to work for say 35 years until age 65 the projected income protection benefits would pay approximately $3,717,000; or alternatively if you elected benefit period to age 70 to meet your retirement goal, the projected income protection benefits would pay approximately $4,641,800.

Other Definitions within Income Protection policies:

Income Protection Terms & Definitions

Benefit Period – The period during which the monthly benefit is payable e.g. age 65 or 70 for retirement age
Waiting Period – The number of days from disablement until claim payment commences
Agreed Value – The monthly benefit is agreed upon at time of application based on financials
Indemnity Basis – The monthly benefit is not guaranteed and is assessed at the time of claim

 

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