Ask An Advisor

Hello and welcome back to Ask An Advisor.

The questions keep flowing in from the Equity Mates community, and we’re doing our best to get to all of them. Before we jump into today’s question on income protection a reminder that it’s your last chance to win $500 towards bills and grocery.

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The week’s question

My husband and I are in our mid 30s. I have a small amount of cover through super (less than 2 years salary) and he has no cover. We don’t own a home but are looking at rent-vesting

When it comes to income protection: We know we need it but where do we start? How does it work? Through Super / outside super? What does it cover?

- Emma

This week’s advice

This week’s advisor is Glen Hare, from Fox & Hare.

This is his response to Emma:

An income protection policy pays you a monthly benefit amount if you are unable to work due to sickness or injury (a claimable event). The policy will cover you for a maximum of 70% of your salary for a set period.

When thinking about whether income protection is necessary, consider a situation where something were to happen and you didn’t have your income. How would you pay the mortgage, rent, or just keep up with day-to-day expenses?

Would the back-up plan be to start selling assets, erode cash savings (considering how long this would last) or move back in with the folks? If none of this sounds appealing, then you should consider income protection.

The first step is to understand your existing policy, which for most is the ‘default’ cover you get through your superfund. Be clear on what you are covered for and, just as important, be clear on what you are not covered for.

Before making any changes to your existing policy (such as cancelling it), make sure you have alternative cover in place. Personal Insurance (such as Income Protection) often requires you to go through ‘underwriting’ which means that your application may or may not be accepted by the insurer. The last thing you want is to cancel any cover you currently have (even if it’s not great) if you can’t get anything better.

Given the complexities and considerable investment Income Protection demands, I’d encourage you to seek the advice of a professional. I’m not just saying that because I am one, but this is a big decision which comes with a hefty price tag and you want to make sure you get it right. Many of us insure our car, pets, and take out travel insurance but neglect arguably one of our most important assets, our ‘income’.

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About Glen Hare

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