Chambers

Income Protection

What is it?
Also called salary continuance, this replaces up to 75 per cent of your salary - paid monthly - if you are unable to work due to illness or accident.  Some policies also continue to make your super contributions on your behalf.

What is it meant for?
If should cover all your monthly expenses if you are unable to work.

How can you save on premiums?
By opting for a longer waiting period.  A policy with a 30-day waiting period is half the price of a 14-day wait policy.  If you have enough savings and sick leave, choosing a 90 day waiting period is about 25 per cent cheaper than 30 days. 

If you can live on less than the traditional payout of 75 per cent of salary, then taking a lower replacement ratio makes sense and will cut the cost of the premium.  Most products offer this option.

Is the benefit taxable?
Yes, at your marginal rate.

What do you need to know?
There are two types of cover.  Agreed value means the amount is agreed at the time you take out the policy, whereas indemnity cover is based on your earnings at the time of the claim.  The former is more expensive, but is better suited to those with fluctuating incomes.  Also if your cover is via super, check whether it lasts more than two years.  If not, top it up outside super.  Lastly, make sure there's no "offset" clause that cancels cover if you also receive a TPD payout.