Income protection insurance a must-have for all investors

If you're a property investor, have you considered protecting your continued ownership of that asset with income protection insurance?

Income protection insurance should not be confused with mortgage insurance, which is required by most lenders where the loan value exceeds a certain percentage (usually 80%) of the property value. Mortgage insurance protects the lender in the event that you default on the loan. Income protection insurance protects you, the investment property owner, by providing a benefit in the form of regular payments in the event that you should be unable to earn the income that you were previously earning due to sickness or injury.

Investing in property is a big decision, generally because it requires a big financial commitment. A great many property investors are required to stretch themselves financially to get that foot-in-the-door; depending on the continued income of the major breadwinner(s) to stay there can be a big risk. However, this risk can be addressed by taking out an income protection policy which will provide benefits in the form of 75% of your nominated pre-sickness or pre-injury income.

When considering income protection insurance, there are several factors which will affect the cost of the premiums. The regular ones include your health, age, occupation, nominated income and your sex. Other factors include the waiting and benefit periods you select.

The waiting period is the minimum number of days the insured has to wait before the income protection benefit payments begin. It is also known as the deferment period. If you opt for a longer waiting period, this can help to reduce your premiums.

The benefit period is the maximum length of time the insured will receive benefits under the income protection policy. The benefit period starts when the waiting period expires, and can extend a nominated number of years, such as 2 years, or 5 years, or to a nominated age such as 60 or 65 or the earlier of your return to work. The longer the nominated benefit period, the higher the premiums.

Annual income protection premiums are generally between one and three per cent of your gross annual income, and, because they are related to earning an income, are generally tax deductible. When calculating your annual income, it's important to remember to include things such as overtime, allowances and fringe benefits so that your broker can ensure that the policy or policies that they recommend cover these items.




This article is bought to you by Imperator Financial and xLife
Disclaimer
The information provided is general in nature and does not take into account your particular insurance needs, financial situation or investment objectives. We recommend that you speak to an insurance advisor before you make any decision regarding income protection insurance.