Summerland Credit Union - Loans, Saving, Investing, Insurance

Generation X - No insurance? Can you afford to risk it?

On average, only 25% of debilitating injuries occur at work or are work related.

In 2007/08 there were approximately 700,000 serious injuries in Australia. Of these, only 216,000 qualified for workers compensation.

Two-thirds of workers can expect to be off work for more than three months during their working life due to illness or injury.

^{Source: Income Protection vs Workers Compensation (July 2009)}

Your greatest asset is your ability to earn an income. Everything you do depends on this. If you’re unable to work as a result of an illness or injury, what would happen?

For those who are balancing mortgage payments, credit card debt and every day living expenses, a sudden loss of income, combined with mounting medical bills would be catastrophic.

In the event you were temporarily unable to work due to an illness or accident, income protection insurance may pay you up to 75 per cent of your income, up to the age of 65, providing you with the ability to maintain a reasonable standard of living.

How does income protection work?

Income protection insurance provides an income stream for you should you become unable to work due to an injury or illness. In the event of a claim, the insurer will pay an amount (normally up to 75 per cent of your gross salary in Australia) until you have returned to work again, or up until the maximum benefit period as stated in the policy which is normally two year, five year or up to age 65.

Why do you need income protection insurance?

You insure your house, car and other valuable possessions, so why not you and your families’ lifestyle?

Consider how much you earn, multiply that by how many years until you reach 65 and then factor in inflation and pay increases. It doesn’t take a mathematician to work out that some people may be risking literally hundreds and thousands of dollars if they were to suffer a long term medical condition without some form of income protection.

Income protection is particularly valuable for self-employed people, casual workers or anyone else who relies on their income but has no sick leave. You will be required to provide evidence of your usual income when taking out a policy.

It’s important to remember that income protection insurance is not a replacement for workers’ compensation, sick leave or private health insurance. Income protection is a long-term solution that should be tailored to work with these and other insurances.

How much income protection cover do you need?

The amount of income protection cover you need will be determined by your salary. In Australia the maximum amount of cover you can get is usually limited to:

• If you are employed: up to 75 per cent of your current gross salary (including employer packaged fringe benefits and superannuation contributions).
• If you are self employed: up to 75 per cent of the income generated by the business due to your personal endeavours less your share of the expenses.

You need to consider the amount of money you would need to cover your debts (mortgage, car loans etc), provide sufficient funds for a spouse, children or other dependants and maintain your assets and investments. Remember, the point of income protection insurance is to provide an income stream if you can no longer work without having to cash out your investments.

How much will it cost?

Income protection premiums vary greatly across the market place depending on the level of protection you are after. Premiums are generally based on your age, gender, occupation and previous medical conditions but you can save money by choosing a longer waiting period and a shorter benefit period. However, there is no point in having insurance that doesn’t pay out when you need it.

Premiums are set depending on:

• Age - the cost of obtaining cover generally increases over time
• Gender
• Health and pre-existing conditions
• Whether or not you smoke - if you are a smoker, or if you have smoked within the last 12 months you will pay more in premiums compared to a non-smoker.
• Occupation - if you are involved in a hazardous occupation or where there are more risks involved, you will pay a higher premium compared to an office worker.
• Waiting period - ie. how long can you be off work before you require the income to commence. Generally, the waiting periods range from two weeks to two years
• Benefit period - this is the maximum length of time, following the waiting period, for which the benefit will be paid. These can either be for a set period (two year, five year) or until a certain age (up to age 65). If you are able to return to work because you have recovered from your sickness or injury then the monthly benefit will cease at that time.

Consider your own circumstances in the event of misfortune and ask yourself honestly – “How would my situation unfold?” Why not discuss your current protection and possible strategies with a Bridges financial planner.

To find out more about the financial issues that affect your generation, Bridges have created a ‘Taking care of MY generation’ guide. Logon to www.bridges.com.au to view an eGuide or call Summerland Credit Union to order a printed copy.

For more information on Bridges’ services or to arrange a complimentary, obligation-free initial consultation with a Bridges financial planner near you, please call Summerland Credit Union on 1300 802 222 and start making the most of your money now.

Bridges Financial Services Pty Limited (Bridges). ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner. In referring members to Bridges, Summerland Credit Union does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.