Income Protection. Have you insured your biggest asset?

Here’s a confronting question: what would you do one if the main breadwinners in your house could no longer bring in an income? Do you have a Plan B? Many people don’t. That’s where income protection insurance comes in.

While we don’t like to imagine that it could happen to us, one in three Australians could be disabled for more than three months before the age of 65. With the mortgage to pay and day-to-day living expenses to meet, it doesn’t take long before you run down your savings and face significant financial difficulty.

If you own a car, perhaps it’s worth $20,000. There’s a good chance you’ve got it insured. That’s a pretty big expense if it gets stolen and you need a car to get to work or even just the practicalities of day-to-day life.

If you own a home, it’s probably insured. You can’t imagine having to fund $300,000 of rebuilding costs if you were unlucky enough to lose it in a fire.

Now what about your income? Is it insured? If you are currently 45 and earn $80,000 per annum, you could earn around $2.15 million over the next 20 years. Isn’t that worth protecting?

 

Current income (per annum) Age now
25 35 45 55
$40,000 $3,020,000 $1,900,000 $1,070,000 $460,000
$60,000 $4,520,000 $2,850,000 $1,610,000 $690,000
$80,000 $6,030,000 $3,810,000 $2,150,000 $920,000
$100,000 $7,540,000 $4,760,000 $2,690,000 $1,150,000

Assumptions: Income increases by 3% per annum. No employment breaks. Figures rounded to nearest $10,000.

What kind of Plan B do you need?

The last thing you need to worry about when you’re dealing with a serious illness or injury is your finances. That’s where insurance comes into its own. It’s a well-known saying that you only realise the value of insurance when you need it – and you don’t have it.

Taking out Income Protection insurance could provide you with a monthly benefit of up to 75% of your income to replace lost earnings while you recover. The cost of the insurance will depend up the waiting period and the maximum benefit period you select. It’s also worth noting that Income Protection premiums may be tax deductible when held in your own name. Alternatively if you don’t have sufficient cash flow to fund the Income Protection premiums, you may want to arrange the cover in superannuation, where the cost will be deducted from your account balance.

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