On average, only 25% of debilitating injuries occur at work or are work-related.

In 2018/19 there were 114,435 compensation claims made for serious work-related injuries in Australia.

The average time it took for a worker to return to work due to a serious injury was over six weeks.

In 2016 the median compensation payout for a serious claim was just $12,600.

Hayat Protection – who needs it?

Some people may not need cover. For instance, if you

• are near retirement and would give up work if you were disabled;
• have lots of sick, annual leave and long service leave to use up convalescing;
• have access to adequate amounts of cash to rely on;
• have a partner or other people who will support you.

Other people may just misunderstand. A common cause of confusion is to think you are covered by worker’s compensation insurance. This, however, only covers accidents at or during work, or illness directly attributed to work. And from the statistics above, the payments received may not be anywhere near enough to cover costs.

If you are not aware of the cover available, read on!

Loss of Income protection pays an income to you if you are unable to work due to an accident or illness. The income is usually 75% of your pre-disablement income and is payable after a “waiting period”. You choose the waiting period to suit your needs – for instance, if you had a lot of unused leave you could choose a longer period.

Loss of Income is particularly valuable for self-employed people, casual workers or anyone else who relies on their income but has no sick leave. You will be required to provide evidence of your usual income when taking out a policy.

The income will be paid until you recover and return to work or for a “benefit period” – this can be as short as one year or up to age 65. Some policies pay a rehabilitation benefit to help ease you back to work.

Loss of Income protection premiums are tax deductible. Many people pay the premiums annually near the end of the financial year to bring forward the tax deduction. However, be aware that the income payments are taxable.

Premiums are generally based on your age, gender, occupation and previous medical conditions but you can save money by choosing a longer waiting period and a shorter benefit period. However, there is no point in having insurance that doesn’t pay out when you need it.

If you’re not sure of your specific needs, talk to your financial adviser who can recommend a solution to suit you. Why take the risk?

The concept of Critical Care cover is relatively simple. If you are ill or injured and unlikely to be able to work again and meet the conditions of your particular policy, you receive a payment. The difficulty has always been to define what is meant by “unlikely to be able to work again”.

Advances in medical science and technology have meant that people who suffer horrific injuries might be rehabilitated and able to return to work, when years ago a similar condition would have left them permanently disabled. For instance, by-pass surgery once ended a working career; nowadays normal life can soon be resumed.

Different policies have different definitions and it’s an area where insurance companies are developing new features. Typical definitions that may be used are as follows.

The any occupation definition

One definition of Critical Care is based on your ability to do your own job (or a similar one where you are qualified through your existing education, training and experience or possible retraining).

Example

A painter who suffers a back injury and cannot climb ladders or stand for long periods may be classed as permanently disabled if he has no other employment skills. A teacher who suffers stress-related illnesses when faced by a classroom of children may not meet that classification if she can work outside the classroom as a tutor, examiner or writer of educational material.

The own occupation definition

A second definition is based on your ability to do just your own job. The premiums for this type of cover will be more expensive.

Example

A surgeon who damages his hands may be classed as permanently disabled because he cannot perform surgical operations, but he will still be able to work as a doctor or lecturer though on lower earnings.

Homemaker definition

The definitions above are only suitable for employed people but another definition is based on the ability to live independently. You would be classed as permanently disabled if you could not dress, eat, bathe, maintain personal hygiene or move around unaided. This means that a spouse who works in the home and raises children could also be insured – what would it cost to do the shopping, childcare, transport and other activities if your spouse could not do it?

How does Critical Care cover fit into a risk management plan?

Constructing a plan to protect you and your family against disaster can use a number of different types of policies. Income protection can provide up to 75% of your income if you are unable to do your own work due to illness or injury – but can you service your debts from this income? Critical Care cover will pay a lump sum if you are diagnosed with a defined illness – but the premiums can be relatively expensive.

Putting in place the right mix of Hayat Protection cover to suit your needs is no easy task, but it is something that we deal with every day.

One of the joys in life is that we don’t know what will happen next. Most of us have positive expectations but sometimes life doesn’t follow our lead and we’re dealt a blow. It’s how we manage each experience – or how we’ve planned ahead – that will make it either good or bad for us. These three stories could have easily turned out quite differently.

Mustafa started his own business servicing computers after working for a major IT company for many years. At age 38, he was enjoying the freedom and control it gave him. Unfortunately, his car collided with a truck on the way to see a client and Jordan suffered a severe whiplash injury. He couldn’t work for two months and the loss of income made life hard for his young family.

He didn’t think to arrange Loss of Income Protection to replace the workers’ compensation cover he’d had with his former employer.

By their late 40s, Muhammed and Summeya had worked hard to reduce their mortgage and used some of the equity in their home for a loan to invest in an apartment. It was tenanted and had the potential for long-term capital growth. Sadly, Muhammed died suddenly after suffering a massive stroke. On a reduced income Summeya couldn’t afford to keep paying off the investment loan. The unit had to be sold quickly at a loss.

They didn’t think to increase Muhammed’s Family Protection when they borrowed for the apartment.

At 42, Layla is a successful business owner and prides herself in managing her personal finances well. She has a diversified portfolio of property and shares. Last year she contracted breast cancer and her work was disrupted with tests and hospital treatment for five months. She has now recovered but the medical bills made a severe dent in her finances, so she was forced to sell a big chunk of her share portfolio at short notice.

Layla didn’t know that Critical Illness Protection may have paid her a lump sum if she was diagnosed with a critical illness.

Three important lessons can be learned from these cases.

Firstly, the unexpected can happen to anyone.

Secondly, take the time to review your Hayat Protection arrangements at least once every year. If there are changes in your circumstances – new job, new loans, family changes, etc. – you may need to make adjustments to your cover.

Thirdly, talk to an expert. There are many different choices of Hayat Protection and it pays to have a specialist analyse your needs and find the most cost-effective solution for your circumstances.

Checklist

• Does your Loss of Income Protection policy reflect the income you are currently earning?
• Will your Family Protection pay off all your current debts and be able to support your dependants if you can’t work?
• Have you taken up a “high risk activity” such as skydiving which could affect your Family Protection cover?
• Will your house insurance pay out enough to rebuild your home if it is destroyed?
• Have you recently installed security devices on your home that might reduce your premium?
• Have you bought an expensive work of art and forgotten to add it to your contents policy?

This list is by no means complete but it’s enough to start you thinking. If it’s time to arrange a review for a complete analysis of your insurance needs, contact your licensed adviser.

The attractiveness of superannuation as an investment and savings vehicle is well known. Although the federal government places limits on the amount of tax-effective contributions we can make, the ability to structure Hayat Protection arrangements through super remains.

How does Hayat Protection through super work?

The types of Hayat Protection considered here are limited to those that relate to a person’s life. Specifically, it includes cover for death, total and permanent disability and temporary disability/illness (loss of income protection.

Rather than owning one of these policies directly, you may be able to arrange for it to be owned by your super fund on your behalf. The flow of premiums and claim payments is shown in the diagram below.

Superannuation or personal ownership … what’s best?

The fact that you can hold Hayat Protection through your super fund doesn’t mean that in all cases you should. Everyone’s situation is different and it is crucial to seek good advice.

Here are a few key issues to consider

• Cash flow: Having your super fund pay your premiums can free up some of your cash flow for other pressing needs. But don’t forget that the super fund deducts the premium from your account, so you’ll eventually pay for it through a lower retirement benefit.
• Flexibility: Your super fund probably offers one insurer only and the beneficiaries of the policy are limited to those allowed under superannuation laws. Personally held policies allow you to shop around for the best deal, and you have more flexibility to choose who to leave the money to.
• Tax: Super funds can claim a deduction for premiums on death and permanent disability cover held for their members (usually not available for these policies if held personally). However, tax issues are more likely to arise when these benefits are paid through a super fund in the event of claim.

On the other hand, loss of income cover premiums are deductible when the policy is either held directly or in a super fund. If your marginal tax rate is higher than a super fund’s, then the tax benefit will be greater if the policy is held personally.

As from 1 July 2019, if a super fund hasn’t received any contributions for at least 16 months, any insurance held in the fund may be canceled. You will need to advise your fund if you wish to continue to hold the insurance.

In some cases, it can be wise to have some insurance inside super and some outside. The best option for you will depend on your personal circumstances, so talk to us when considering any changes to your insurance arrangements.