When it comes to estate planning, most people focus on the arrangements for family and asset distribution after they pass away. However, a crucial aspect that’s often overlooked is preparing for the possibility of falling ill or becoming incapacitated.
Experiencing an illness can be an immensely stressful and unsettling period, not only for you but also for your family, especially if you serve as the primary financial provider. Taking the time to become prepared and evaluating your financial situation can help you to future proof if you are out of work for health reasons. It is essential to know every entitlement available should you become sick or incapacitated.
Income protection
Income protection is a form of insurance that pays you a regular cash amount if you are unable to work as a result of a sudden illness. This coverage can encompass up to 75% of your income for a set period of time.
There used to be two income protection policies:
- Agree Value: This option lets you decide the monthly payout amount in advance.
- Indemnity: With this option, your payout is based on your income at the time of claim rather than when you applied for the insurance.
However, from 31 March 2020, insurers can no longer offer agreed value policies to new customers. If you purchased an agreed value policy before this date, you can continue to hold this policy. If you decide to change policies, you will only be able to purchase an indemnity value policy.
A noteworthy point is that you can often claim a portion or all of your income protection insurance premiums as a tax deduction, provided they are paid from funds outside your superannuation. This can result in valuable tax savings. However, you are not entitled to deductions for a policy that compensates for a physical injury. Other insurance policies that can complement your coverage include health insurance, trauma cover, or total and permanent disability (TPD) insurance.
Incapacity plan
Incapacity planning involves making informed decisions and arrangements for potential future events that may affect your ability to make choices. It addresses what you would want to happen in relation to health care decisions and financial matters if you lose your ability to make or express choices.
In the event you are seriously injured or develop an illness such as dementia, you may not be able to pay bills, file taxes or manage your assets and investments. Incapacity planning ensures that such responsibilities can be managed by someone with the legal authority to act on your behalf.
Key components of an incapacity plan include:
- Living Will: This document outlines your healthcare preferences in case you’re unable to communicate your wishes. Unlike a traditional will, it doesn’t address property distribution after your passing.
- Financial Power of Attorney: This legal arrangement empowers someone of your choosing to manage your financial matters if you become incapable of doing so yourself.
- Medical Power of Attorney: With this document, you designate a person to make medical decisions on your behalf if you’re unable to make them independently. It’s crucial to discuss your preferences with the chosen representative well before any medical decisions are needed.
Early release of super
Accessing your superannuation before retirement is generally limited, but specific circumstances allow for early release. These circumstances include:
- Incapacity: If you experience permanent or temporary incapacity.
- Severe Financial Hardship: When you’ve received Commonwealth benefits for 26 consecutive weeks but still can’t meet immediate living expenses.
- Compassionate Grounds: This option applies if you require funds for medical treatment due to serious illness.
- Terminal Medical Condition: If you’ve been certified by two registered medical practitioners (at least one being a specialist) to have a terminal illness or injury with a life expectancy of fewer than two years.
About our adviser: Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 30 years. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance with your estate planning.
This is general advice only and does not take into account your financial circumstances, needs and objectives. The article should not be relied upon as specific information or advice without obtaining appropriate professional advice after a detailed examination of your particular situation from a qualified KMT adviser.
