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Every tradesperson relies on being fit and healthy to help them carry out their physically demanding work, especially as many of them are contractors or self-employed. But what happens if you are injured or fall ill and cannot work for a substantial period? How can you afford your day-to-day expenses, debt obligations, let alone medical expenses? This is where income protection insurance can be extremely beneficial.
Tradies need income protection insurance to give them and their families financial security should they be unable to work due to illness or injury. But what is income protection? Read on to learn how tradies can utilise Income Protection insurance.
Income Protection Insurance
Ever thought about what would happen to your family and business if you were suddenly unable to work for several months, or even permanently due to illness or accident? How many weeks could you survive without any income?
The Australian Bureau of Statistics found during from July 2017 – June 2018 (the most current report data available) 563,600 people had a work-related injury or illness and of these 563,600 people, those working as technicians and trades workers were amongst the most likely to be affected. 1
Most self-employed or contracting tradespeople generally do not have access to sick leave or workers’ compensation insurance. This means that you need to find a suitable alternative to cover yourself, which may lie in income protection. This insurance will pay up to 70% of your monthly income when you cannot work due to illness or injury. It’s one of the most important insurances an employed person can need.
The factors that impact your income protection coverage are:
This is how much you can expect to receive in monthly benefits once you become a retiree. As a rule, the maximum amount you can receive is 70% of your pre-tax income.
When you apply for income protection, you typically choose whether to get an indemnity or agreed value policy. Your benefit is computed based on your income when you choose an indemnity policy; whereas you will receive fixed monthly payments under an agreed value policy. When choosing between these types of income protection insurance, your income stability is the main thing to consider. If it isn’t likely to change, you could choose the indemnity option. If you freelance or have a fluctuating income, the agreed value option could provide more security.
Your benefit period will determine the maximum amount of time you can continue to be paid a monthly benefit. However, if your doctor determines that you are sufficiently fit and healthy to return to work before the end of your benefit period, your payments will cease.
Most current policies offer a fixed-term contract of two or five years, or up to a specific age (the maximum age is 65). You will nominate your benefit period when applying for your policy. The longer the benefit period, the more expensive your premium.
Your waiting period is the amount of time between the date of disablement and the date you can commence receiving benefit payments. Most IP policies offer a waiting period of 30, 60 or 90 days, so you will need to consider how long you can rely on your savings to solely fund your living expenses. The shorter the waiting period, the more expensive your premium.
Tips for Tradies
Now that you’ve got a basic understanding of Income Protection, here are some tips for getting this cover:
You can’t rely on worker’s compensation
As sole traders/proprietors, or members of a partnership are not considered workers, they cannot take out workers’ insurance to cover themselves for injuries.2 Furthermore, even if you are employed, workers’ compensation can only cover you for a work-related injury, it doesn’t protect you in the event of a serious illness or injury outside the workplace.
Consider the benefits rather than the cost
Income protection can seem expensive to some, but imagine the cost to you if you were uninsured and unable to support yourself and your family. Like most other Life Insurance products, your premium will be dependent on the level of cover you apply for, your age, smoking status, the type of work you do, and more.
To alter the price of your premium, you can review which sum insured/benefit period/waiting period combination is affordable yet still provides adequate cover, and remember that Income Protection premiums paid personally are generally tax-deductible. Alternatively, you may be able to own your Income Protection policy via your superannuation fund.
Always be keen to check the details
Be careful signing up for insurance that doesn’t require underwriting or a medical check as there may be loopholes to receiving benefits for pre-existing conditions that you may not find out about until you need to claim. Buying fully underwritten insurance will ensure that pre-existing conditions have been assessed as part of your policy.
If you want to find a suitable Income Protection policy that is favourable for a tradesperson it is best to ask an experienced Financial Adviser who specialises in Insurance. They will assess your situation and determine the types and level of cover required to adequately protect you and your family. They understand the fine print and are supported by research and legal teams who assess every product.
Always remember to thoroughly read your Insurance policy Policy Disclosure Statement to ensure you understand your policy’s features, benefits, fees, risks and the complaints handling procedure before proceeding with any application.
Need More Help About Income Protection Insurance? Speak with the Experts!
Are you a tradie on the Mid-North Coast looking for suitable, cost-effective insurance cover? Then you should contact Coastal Advice Port Macquarie. Our specialist insurance advice team has a comprehensive knowledge of Australian insurance products and is ready to help you prepare for the unexpected. Call our team or book online to secure your complimentary first meeting with us today!
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.