We all know how important it is to ensure the most important asset you have and that is the ability to earn a living. However, just recently I have come across two different cases when clients haven’t reviewed their income protection policy with me and after such reviews we found that their income level had dropped significantly in both cases. You see, the premium for an income protection policy is based on a number of factors, one of course being your health, two being the length of the policy and three being the monthly benefit paid, plus there are other factors as well. Now if you are paying a premium for a $6,000 benefit and during the course of the following 12 months, two years, three years your income level does drop you will not be paid the full benefit that you are currently paying because the insurance company will only pay 75% maximum of your gross income at the time of the event, whether it be medical or accident. This is an indemnity style income protection policy which most people will find they have. With this policy proof of financials must be shown at claim time. There are ways to guarantee your income level with what we call an agreed value but for now let’s discuss what would happen with the most common form of income protection policy as an indemnity style.
So let’s say George, who earned an income of $100,000 per annum for years ago and took out an income protection policy to cover him for the maximum benefits available which was 75% which equals $75,000 a year or $6250 per month, and today George reviews his policy with me and after going through his financials I find he is now earning only $50,000 a year because his business is not doing that well, or he may not be working the same hours, or a myriad of other factors to bring his income level down however George is still paying a premium to cover himself for $6250 per month which of course he won’t get. He will only be covered for 75% of his gross income at that time of the event that he cannot work.
So this is why it is important to review your financial situation regularly with your financial planner, with me so that if things do change and your income level has dropped we can make changes to your level of benefit and of course to save you money and to make sure of course your income protection policy is the right fit for you. If you have any questions here by all means phoned me, (08) 8304 8088.
Wishing you a very Merry Christmas and a safe and happy New Year.