When you apply for income protection, you can generally choose a sum insured that’s up to 70% of your before-tax income (excluding super contributions).
There's not much you can do without an income. In monetary terms, your ability to earn an income is your biggest asset by far - which is why income protection is so important. When you’re protecting your biggest asset, there are 3 things you need to understand so you know what you’re covered for, and what that means at claim time:
- How much you’re covered for – the sum insured
- How long you need to wait to be eligible to make a claim – the waiting period
- How long your claim will be paid for – the benefit period.
When choosing your waiting period, you should think about how soon you’re likely to need financial support if your income stops:
- If you have access to sick leave or annual leave, or a high level of savings, you may be able to take a longer waiting period and reduce your premium.
- If you’re a casual employee or business owner, or you have a low level of savings, you may want a shorter waiting period, bearing in mind your premium will be higher.
Say you’re aged 40 and you become permanently disabled, meaning you’ll never be able to return to work. If you had a 2-year benefit period, your benefit payments would stop when you’re aged 42. But if your benefit period period was to age 65, you would continue to receive benefit payments for an additional 23 years as you continue to meet the disability definition.
Choosing a longer benefit period increases your premium because the potential payout is higher. However, be aware the benefit period is the maximum amount of time you can receive payments. If you’re able to return to work sooner than that, or you reach age 65, your payments will stop.
Also, if your policy offers ‘partial disability benefits’, you may be able to return to work part-time and receive reduced payments until you’re able to work to full capacity. This can be a great benefit to have as it means you're supported if you're restricted in your capabilities, or you want to try a new occupation.
One great feature of income protection (outside superannuation) is that premiums are generally tax-deductible, which can make it significantly more cost-effective to get the cover you need.
You may also be able to hold an income protection policy inside super, meaning you can use tax-effective super contributions to pay your premiums, however, within a superannuation policy, features are generally more restricted.
If receiving payment for an income protection claim (outside super) OnePath does not withhold tax (under the PAYG withholding system) from claim payments, so it is advisable that you retain your payment statement for your tax records and include the claim payments received in your tax return (however you should seek tax advice to understand your personal tax liability).
OneCare is issued by OnePath Life Limited (OnePath Life) ABN 33 009 657 176, AFSL 238341. OneCare Super is issued by OnePath Custodians Pty Limited ABN 12 048 508 496, AFSL 238246. OnePath Life is not a related body corporate of OnePath Custodians.
We recommend that you read the relevant Product Disclosure Statement available at www.onepath.com.au or by calling 133 667 before deciding whether to acquire, or to continue to hold the product.
OnePath Life Limited (OnePath Life) ABN 33 009 657 176, AFSL 238341. It is current as at September 2019 but may be subject to change. Updated information will be available by contacting Customer Service on 133 667.
Whilst care has been taken in preparing this material, OnePath Life and it's related entities do not warrant or represent that the information is accurate or complete. To the extent permitted by law, OnePath Life and it's related entities do not accept responsibility or liability from the use of the information.
Where tax or technical information is needed, the information is our interpretation of the law and does not represent tax advice.