This form of insurance provides you with a monthly income should you be unable to work due to sickness or injury. The benefit paid can be used for any purpose and thus can be used for living expenses, home loan repayments, regular investment and other costs. This enables you and your family’s lifestyle to be maintained during the disablement period.
It is particularly important to those who have geared investments in which the loan payments are reliant on your income.
Income protection insurance provides a regular income up to a pre-determined benefit period of several years or up to a specified age. The maximum benefit paid is usually limited to a percentage of either your current income or the income prior to your disablement. Indemnity contracts offer payments whilst on claim of an amount equal to a fixed percentage (usually 80%) of pre-disability income up to the amount insured.
Alternatively, an Agreed Value product guarantees payment of the sum insured irrespective of the actual pre-disability income. This type of policy is more expensive but provides certainty when obtaining financial information may be very difficult.
The premiums payable on income protection and business expenses policies are tax deductible, however the income payments received will be taxed at your marginal tax rate.
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