Time to reconsider taking out income protection
SEVERAL years ago, media reports uncovered dodgy practices among some life insurance companies. It may have rattled consumers' confidence in what is an important financial product, so it's good to know that the industry has lifted its game.
A review by money watchdog ASIC found that these days a high proportion of life insurance claims are paid out in the first instance - 97 per cent in the first six months of 2017, with over half these claims settled within a fortnight.
Life cover plays a vital role protecting the financial wellbeing of many Australians - particularly families. So any move that increases our confidence in life insurance is a step in the right direction.
With 30 June fast-approaching, it's worth taking a close look at another type of insurance - one that protects what is arguably your most valuable asset, your ability to earn a regular pay packet.
Income protection insurance provides a steady income stream if illness or injury mean you're unable to work. There is a limit to the amount of cover you can take out - typically worth around 75 per cent of your normal wage or salary.
But one of the pluses of income protection cover is that the premiums are generally tax deductible. That's why, as we head towards the end of the financial year and many people are looking at ways to save on tax, it's worth checking out income protection insurance.
As with any type of insurance it pays to shop around as premiums and policies will vary widely between insurers.
A variety of factors will determine the premium you pay, including whether or not you want the benefits to be adjusted in line with inflation, how long you're prepare to wait for the premiums to kick in, and the type of work you do. White collar workers often pay lower premiums than blue collar workers due to a lower risk of injury.
According to research group Canstar, income protection insurance can cost around $40 per month for a male 20-something accountant. That sort of premium buys a monthly benefit of $3,125 if you need to call on the policy. Sure, it's another expense to wear. However, if the unexpected happens, income protection insurance could be the safety net that lets you and your family stay on track financially.
Paul Clitheroe is Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.