Income protection matters at every age
Are you looking towards a comfortable retirement in the not too distant future? If you are, you need to ensure your income is protected, so that in the event you fall seriously ill or experience an accident in the lead up to finishing work for the last time, you don’t have to dip into your retirement savings to cover your income shortfall while you recuperate.
It’s easy to assume that the older you get, the less important income protection is. You might have paid off the house in full; you might even be working part-time and looking towards a time in the not too distant future when you’ll be stepping out of the workforce altogether.
But the runway to retirement is actually one of the most important times to ensure your income is adequately and fully covered. Because if you had to stop work for any extended period as a result of an accident of serious injury during this time, without income protection insurance you would probably need to rely on your retirement nest egg to keep the ship afloat. This could have serious and negative consequences for how you spend your retirement.
Worryingly, research conducted by the Australian Institute of Superannuation Trustees and Industry Funds Forum has found a significant underinsurance problem when it comes to income protection. The research found 45 per cent of Australians are underinsured by $1,000 a month1. For people in this group, making ends meet becomes a real issue – something that is difficult to contemplate when you are also trying to recover from an accident or illness.
The message is that without adequate income protection cover, an accident or serious illness could have terrible consequences for the lifestyle you wish to lead when you do transition out of the workforce.
Cover that’s right for you
So what is income protection insurance? It’s a type of cover that offers a benefit in the event you suffer a serious illness like cancer, heart attack and stroke, or experience a serious accident that prevents you from performing your usual job.
Policies generally cover up to 75 per cent of your total salary, for a period of up to five years. A waiting period of up to six weeks generally applies between the time of the diagnosis or accident and the time you receive a pay-out but can be reduced according to your needs.
One of the benefits of income protection insurance compared to life insurance is that it’s usually tax deductible, which helps to reduce your taxable income and the tax you pay.
There are two main types of income protection premium options, stepped and level. Stepped premiums are generally cheaper than level premiums, but their cost increases over time. Whereas level premiums are more expensive than stepped premiums at the time the policy is taken out, but reduce in price compared to stepped premiums over time.
Safeguarding your retirement
Let’s look at a hypothetical case study to show why income protection insurance is important at every age. Bob, 57, and his wife Sue, 55, had only just paid their last mortgage repayment and were contributing the funds equivalent to their old monthly mortgage repayment to their self-managed super fund.
Cleaning the gutters one afternoon, Bob slipped off the ladder, breaking his hip. He spent two weeks in hospital and six weeks in a rehabilitation facility, and needed to take six months off work to recuperate fully.
Because he had taken out income protection insurance he was able to take the time off work and still maintain his and his wife’s lifestyle. Had he not had this insurance, he would have been required to use money set aside for his retirement.
If you don’t have income protection insurance, or want to ensure you have the right level of cover for your personal circumstances, why not talk to you adviser today? It’s a great way to give you peace of mind that you have everything in place for a comfortable, enjoyable retirement.
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Funding the Golden Years
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Your super account will generally be considered ‘lost’ if:**
- no contributions or rollovers have been added to your super account in the last year and either your super fund never had an address for you, or mail sent to you by your super fund has been returned unclaimed,
- or for employer default super plans, no contributions or rollovers have been added to your super account in the last five years.
If your super account is considered lost it could be transferred to the ATO if:
- your account balance is less than $2000, or
- your super fund is unable to identify you as the owner of the account based on the information reasonably available to them
- your super could also be transferred to the ATO in certain other circumstances.
The ATO could also be holding other super amounts for you:
- such as Super Guarantee amounts paid to them by a previous employer or Government Co-contributions or Low Income Super Contributions paid by the government
- another way to find your super is using the ATO SuperSeeker Service
- there are other circumstances in which the ATO could be holding your super.
* The Commissioner of Taxation Annual report 2014-15, available at ato.gov.au, reported $13.5bn in lost super as at 30 June 2015.
** The information provided is factual only and does not constitute financial product advice. This information is given in good faith and has been derived from sources believed to be accurate. It should not be considered a comprehensive statement on any matter nor relied upon as such we do not accept responsibility for the accuracy or completeness of this material. Except where contrary to law, we intend by this notice to exclude liability for this material.
The information shown is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed hereto.Read More >>