Young family’s home and lifestyle protected during period of ill health and reduced income.
Tim and Rita were referred to FB Wealth Management by their parents, who have a long association with our firm. Their parents were carers for Tim and Rita’s children, while they worked full-time paying down debt on a very large home mortgage.
However, as grandparents who had only just recently retired, they were concerned of the consequences if Tim or Rita were to become sick or injured. Both incomes were required to service the primary place of residence debt. If either one was unable to work it would have been difficult, if not impossible, to retain the much loved home. Importantly though, any financial stress could even indirectly affect the parents’financial security. As a result they were referred to our firm to revisit their insurance portfolio.
Both Tim and Rita had income protection policies within their superannuation funds (unbeknown to them). After further research of the superannuation statements we could see they each had a 90 day waiting period attached to their income protection policies. This was not a great concern, as they had both been with their employers for a long period of time and had adequate sick leave available to them. However, an area of great concern was the benefit payment period of each of the policies. As is common with a lot of income protection policies under superannuation, the benefit period for both Tim and Rita if they were sick or injured was only 24 months – meaning that after just two years of claim the policy would be terminated.With a projected 35 years of income earning ability still at their disposal, there remained a significant exposure in their insurance portfolio.
While researching Tim’s income protection policy under superannuation, we discovered that it did not provide coverage if Tim was to claim on mental illness, stroke, anxiety or depression. This is not an uncommon exclusion on income protection policies and can be used to reduce premiums offered by the superannuation fund.
We highlighted this exposure to Tim and it was obvious to him that he had to obtain his own personal income protection policy to ensure his family was protected. Obtaining a personal policy also allowed Tim to claim a tax deduction for the entire premium. This is not available within a superannuation owned policy as the premiums are funded by the superannuation account. After successful implementation, we were able to cancel the policy within the superannuation fund to stop unnecessary erosion of the account balance.
Rita’s policy was of reasonable quality, but the issue remained that it would only pay for two years in the event of a serious claim. We therefore advised Rita that she could maintain the policy that is paid by her superannuation fund but she should also consider a second policy which she owns and pays for herself. This additional policy would be designed to commence payments to her after two years of disability if she was still sick or injured, and would continue to pay Rita through to age 65 if required. This is an additional 32 years of payments compared to the policy within her superannuation fund. With her personal policy having such a long waiting period of two years, the premium was quite inexpensive when compared to Tim’s policy, which required a waiting period of only 90 days before the insurer was required to pay.
Both Rita and Tim’s personal policies were fully tax deductible and provided them with peace of mind that their lifestyle was protected should either or both of them fall ill or be seriously injured.
Unfortunately, two years after implementation of the income protection portfolio, Rita began to suffer from depression. Brought on by a combination of workplace pressure, workplace bullying from her superiors, and guilt of not spending enough time with her family, Rita sought medical help. Rita’s condition continued to deteriorate in the years that followed.
After the policy under her superannuation fund expired (24 months of claim payments) she was then able to move on to a continuous claim with her own personal income protection policy. Happily, after just six months of claim on her personal policy, Rita began to turn her life around. She was able to obtain a far less stressful job with a new employer. She was able to work a reduced number of hours as she continued her rehabilitation. While she was only earning a fraction of the income she once earned, her income protection policy was able to pay her partial claim payments to top up the income she was now earning again.
This benefit is available to Rita until age 65 or to such a time that she is able to return back to work full-time, earning a similar amount of income prior to the claim. Rita is still on claim today and is now very close to returning to full-time work.
Having a personal income protection policy with a benefit period payable to age 65 provided Rita with full flexibility when handling her claim. It also ensured that Tim and Rita could maintain their primary place of residence at a time when they were reduced to one income.