Investing in property is ultimately about building one’s wealth. However not everyone is doing everything necessary to protect their wealth.
Numerous studies have shown that Australians are some of the most underinsured people among the developed countries. Underinsurance could lead to financial difficulties, especially when one still has a substantial debt to repay, as is the case for people with mortgages. The impact is often severe when the debtor loses their job, since it prevents them from servicing the loan, which in turn puts their assets at risk.
‘If you are a property investor, insuring your assets should be one of your top priorities,” reminds Adrian Fiore, Agem Property Director. ‘This is where income protection insurance comes in.’
What Income Protection Insurance Is
This type of insurance can cover up to 75% of your salary for a specified period should a serious illness or injury keep you from working. By having income protection insurance, you need not worry about how to pay your bills or buy groceries, as well as how you will pay for your monthly mortgage repayments when you’re out of work and without a salary.
Benefit Period & Waiting Period
Specific features of the policy will differ from insurer to insurer, and the type of policy taken out by the insured. Two of the most important aspects of an income protection insurance policy are the waiting period and the benefit period. The waiting period refers to the amount of time that you have to wait before your benefit payments are credited, while the benefit period is the duration when a benefit can be paid to you. The waiting period may be from 14, 30, 60, 90 days to even as long as 2 to 5 years. Meanwhile, benefit periods could last up to 5 years. The options available may depend on the insurance company.
Indemnity & Agreed Value
Aside from the benefit and waiting periods, you may also be given a choice between an Indemnity Value or an Agreed Value policy. In an indemnity value policy, the benefit amount will be based on your average salary for a specified period, usually based on your salary over the last 3 years. On the other hand, an agreed value policy is where you decide with the insurer on the benefit amount you will receive. Between the two, the agreed value policy may have higher premiums, but is more geared towards self-employed people such as property investors since their income may fluctuate over time.
Taking Advantage of Tax Deductions
One of the features that make this type of insurance attractive to property investors is that the premiums are tax deductible. Thus, getting this type of insurance is killing two birds with one stone because you’re getting tax benefits whilst also simultaneously securing your future and your assets in case you are unable to work.
All in all, it is necessary for any property investor to get personal insurance for their own protection and that of their family. Given the fact that the premiums are tax deductible, there are also tax benefits involved in taking out income protection insurance.