Not all invalidity cover is alike!
Many of our clients have PSS invalidity and Death cover as part of the inbuilt benefits of the scheme. The PSS is a generous scheme. However, you may not be aware of some shortcomings in the insurance – particularly if you are temporarily disabled. We’ve highlighted a few issues here that you should consider if you have PSS invalidity cover.
Life and invalidity is not the same as income protection
You are provided an inbuilt Death and invalidity benefit in the PSS at no cost.
You will be paid an invalidity benefit if you are permanently disabled. This benefit is based on the lump sum you would have received if you had worked to age 60. The eligibility for this has strict criteria, but generally means you will be no longer able to work in any occupation. You can elect to take this benefit as a pension or a combination of a pension and lump sum.
Generally, your eligible spouse or dependants will be paid a percentage of the pension you would have been paid if you retired on invalidity grounds in the event of your death.
The PSS also offers a partial invalidity pension (PIP). This is paid as a salary supplement. If you incur a permanent decrease in salary because of a particular medical condition this will be paid to you. This condition results in you returning to a position at a lower level or to work reduced hours, or a combination of both.
There is no inbuild temporary invalidity cover
However, if you are temporarily disabled, injured or sick and unable to work at all for a period of time – but you will at some time return to work – there is no inbuilt cover available. This is probably one of the most important types of cover as it is more likely to occur. Generally, an Income Protection policy would cover this type of situation.
Income Protection covers you for temporary illness or injury
Sarah is in a serious car accident and will be in hospital for more than three months. After that time, she will need rehab, physio and other medical procedures to get her back on track. Her doctor has told her that she wont be able to return to work for six months – maybe longer.
If this was you, how would you support your family? You would be OK for a time if you could use your sick leave or annual leave entitlements. But after that, what options do you have? Could you pay your debts? Feed yourself and your family? Pay for any medical expenses not covered by your insurance?
Income Protection insurance aims to replace your income in this type of situation. Generally, you can receive a benefit of around 75% of your salary, paid to you each month after an initial waiting period, if you are temporarily disabled and unable to work.
This very important cover that is not currently provided by the PSS. You are however, able to take out a personal policy, outside of super. Alternatively, if you have another super fund you may be eligible for this cover and pay the premiums from your super account. If paid for outside of super, you may also be able to claim a personal tax deduction for the premiums paid.
Income Protection replaces your income
There are many important reasons why you need Income Protection insurance (even if you are not a PSS member):
- To replace a portion of your income so you can continue to pay your bills.
- It can help with out of pocket medical expenses. You may not be eligible for Workers Compensation. Income Protection will provide a benefit to you in this situation.
- You may also be able to receive a superannuation contribution component to your cover. This means, in addition to the income paid to you, a percentage of your salary will be paid into your super fund. So, your super will be maintained in the event of a long term illness.
- If you take out the cover outside of super, the premiums are tax deductible, which helps to reduce the overall cost of this insurance.
Income Protection insurance provides you an income if you cannot work due to illness or injury. But, maybe more importantly, it means you have the peace of mind in knowing that you don’t have financial worries. Which means you can focus on getting better!
Call Milestone Financial today to discuss your insurance needs on 02 6102 4333.