Income Protection Insurance

Gareth Daniels from Income Solutions

Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee 

Are you looking at purchasing your first home or planning on starting a family soon? If so this is the perfect time to look at getting an income protection insurance policy in place or re-evaluating your current policy.

Buying a new home or starting a family, or both, is such an exciting time and you’re probably getting lots of different opinions from family and friends on what you should be doing, so let’s break down the facts.

What is Income Protection Insurance?

Essentially, it pays up to 75% of your income if you are unable to work due to injury or illness. If you have debt, dependants, or both. We all know that whether your income is coming in or not, the bills still need to be paid. It is advisable to have income protection insurance to help pay those bills and support your loved ones in unforeseen circumstances.

When paying your income protection insurance, you have main 2 options, paying through your superannuation fund or paying directly from your income.

Paying through your super fund

If you choose to pay your income protection through your super fund, it will cover the premium giving you more money in your pocket to pay for other things. This strategy is useful if you are trying to pay down your mortgage or have school fees to pay as the premium is coming from your superannuation, not your wage, so there is more money in your pocket to pay down your mortgage or pay for childcare or school fees.

However, there can be some restrictions on claims, dependant on your policy, we advise that you speak to your financial advisor to clarify these specifics.

Paying income protection from your wage

Alternatively, you can pay your premium straight from your wage, and in many cases, this can prove a greater tax deduction compared to the tax rebate that will be paid into your super fund.

For example, take the average Australian wage of $60,000. This person will pay around 32.5% tax each financial year (not including the Medicare levy). If they pay their income protection insurance from their wage they will get back about 32.5% of that premium at tax time.

How do I know if I have the right cover?

These days everyone has a super fund, and you may have a level of income protection insurance by default, however this policy may not be right for your personal situation. So, feel free to grab your super fund statement and come in for a coffee and a chat and we can look at the right coverage for your current situation.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. 

Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.

 

 

 

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The Payday Loan Trap

I’m sad to report that I would now be categorised as “middle-aged”. Urrghh – how did this happen? As abhorrent as the idea is, I must admit there are times where I do get little subtle reminders that I have lived a little and along the way have managed to find some sort of wisdom. So when I’m relaxing in front of the TV and find myself watching ads for payday loan companies, I tend to get angry. It’s not that these types of businesses are anything new. The main difference as I see it is that in my youth such businesses would have been called pawn shops or loan sharks – only used by people in absolutely dire circumstances and there is no way I could ever have imagined myself delving into that murky world.

Apart from that, I had a part time job and I guess by following the example of my parents I had developed a healthy mix of spending and saving, all executed within my means. Now forward from the 1980’s to today, where I see ads for instant cash transfers that you order from your mobile phone. There are two adverts in particular that come to mind and each time I see them, I’m left seeing red at the bad example they are setting. One involves two male friends at a pub, and one spots a good looking girl and he wants to buy her a drink. The friend suggests he call a payday loan company that will transfer money to him within a matter of minutes. Reality check – in my mind the sequel ad should show the guy subsisting on bread and water for the next few weeks because the round of drinks was so expensive after factoring in the price of the loan that he can’t afford to eat. In my version the girl is long gone, of course – enjoyed her drink and thought the guy was cute but couldn’t get past the fact he was broke and irresponsible.

Back to TV world, the other advert involves a girl getting told off about her expensive mobile phone bill. Despairing over not being able to pay the bill and attempting to absorb the unimaginable advice that she should curb her social media “selfie” habit, she opts to get a pay day loan. The normalisation of these situations and the accessibility to a quick fix solution combine to create a really frightening situation.

The Herald Sun (18/03/15) recently ran a story titled “Payday Loans Alarm – Depth of crisis a riddle”. The story advises that payday lending has grown a whopping 125% in the past 7 years, with ASIC deputy chairman Peter Kell stopping short of calling for a ban. “In just about every jurisdiction on the planet there is payday lending of some sort, but we need to be sure the sector operates in a way that those financially vulnerable people are not harmed” he said. The abovementioned Herald Sun article also states that Choice spokesman Tom Godfrey said that such lenders were “going gangbusters” and often asked borrowers to repay the “staggering” annual equivalent of up to 700% in fees and interest.

When I think about my own children and how sponge-like they are when it comes to absorbing the information overload available to us in this technology driven world, I start to become concerned. How can I make sure they understand the basics – like you can’t spend more than you earn, sometimes you have to stay home instead of going out, you can’t always get what you want (insert background music by the Rolling Stones here). So how do you get this message across? It’s very hard to counter the slick advertising campaigns that target young people. Unfortunately this is only a tip of the iceberg but I am proud that at Income Solutions we have developed several presentations that focus on some common sense simple strategies applicable to all ages and circumstances. We aim to demonstrate that financial planning is for everyone, young or old (even middle-aged……..), well established or just starting out, professional career or apprentice tradie. If advertising messages are powerful, I’d say follow Nike’s slogan and “Just Do It”! Get educated (not by the TV) and start the journey today.

Alison_Adams

By Alison Adams, Business Development Manager

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