Why insuring your ability to earn an income can be a prudent strategy

Not many people risk being uninsured when it comes to their car or home. But many choose to not insure their most valuable asset – that is, their ability to earn an income.

This is despite the fact that most people will earn a fortune between now and when they retire, as shown in the table below:

Income p.a.

Age Now

 

30

40

$60,000

$3,365,096

$1,786,685

$80,000

$4,486,795

$2,382,246

$100,000

$5,608,494

$2,977,808

$150,000

$8,412,741

$4,466,712

Note:  Assumes income increases each year by 4%. Retirement age of 60.

 

This means that most families are carrying significant financial risk should the unexpected happen. The big question you have to ask yourself is:

“Would your family be able to maintain their lifestyle if you suddenly couldn’t earn an income due to a serious illness or accident?”

If your answer to this question is no, you need to consider transferring that financial risk to an insurance company by purchasing income protection insurance.

Your financial adviser can help you do that, as well as answer any questions you have about income protection insurance, and then calculate how much you need to safeguard you and your family in the event something should happen to you or your spouse. And, if you wish, your adviser will use our sophisticated computer program to ‘broker’ the major insurers to find you the right cover at a competitive price*.

What is Income Protection Insurance?

Income protection insurance is designed to replace your income if you are unable to work due to sickness or injury. It provides a monthly payment of usually up to 75% of your pre-tax income, provides 24/7 cover, and whether the illness or injury happens at work is irrelevant. Its purpose is to provide you with a regular income to help you cover your living expenses so you can focus on your recovery. The premiums are tax deductible for most people.

What if you already have income protection through your employer?

Some people have basic income protection insurance through their employer. But this insurance generally pays a benefit for a maximum period of only two years and is a basic type of cover. This means if you are unable to return to work after two years you may not have a source of income.

In some instances it may therefore be appropriate to take an additional policy with a benefit period up to age 60 or 65.

How do the insurance companies view you as a risk?

Some insurance companies may charge you significantly less than other companies for the same cover, simply because they see you – or your occupation – as a lower risk. That’s why you should use a financial adviser who has the ability to ‘shop around’ the reputable insurers to get the best solution for your particular situation.



*Insurance cover is subject to eligibility.

Disclaimer: This article is not legal or personal financial advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. Where a particular financial product is mentioned you should consider the Product Disclosure Statement before making any decisions in relation to the product. Whilst every reasonable care has been taken in distributing this article, Australian Unity Personal Financial Services Ltd does not guarantee the accuracy or completeness of the information contained within it. Any views expressed are those of the author(s) and do not represent the views of Australian Unity Personal Financial Services Ltd. Australian Unity Personal Financial Services Ltd does not guarantee any particular outcome or future performance. Taxation Information in this document should not be relied upon without seeking specialist advice from a tax professional. Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459, 114 Albert Road, South Melbourne, VIC 3205. This document produced in December 2018. © Copyright 2018