Income Protection Insurance
Most Australians are familiar with the need to protect assets such as their home and car with the right insurance, but what about protecting your ability to earn an income?
Many people may see their home as their most valuable asset, but in reality the most valuable and important asset for most people is their ability to earn an income.
Consider a 30 year old earning $65,000 per year. If they lost the ability to work, they would lose over $2.2 million in future earnings. That doesn’t take into account pay increases due to promotions or inflation, which could easily double or triple this figure.
Unless you live in a very valuable home and have a very small income, it is most likely that your ability to earn an income will be your most valuable asset.
Each day many Australian workers lose their ability to earn an income. This is generally due to major illness as well as accidents. But it’s not just major incidents you need to worry about. Even just a few months or a few years can have a major financial impact on you and your family.
Protecting your income
Just as you insure your home and your car, you may want to consider insuring your income. An income protection policy will replace up to 75% of your income in the event that you cannot work for a period of time. This period of time will depend on the policy options you choose, but for many Australians this period – known as the waiting period – covers thirty days.
The funds from your income protection policy can be used to continue paying your mortgage or rent, along with keeping food on the table and covering all other costs and expenses. Without insurance or any other form of income how would you cover these expenses?
What about sick leave or a disability pension?
Sick leave is designed to cover only short term absences from work. Many Australians will only have a few weeks of sick leave available, and even in extreme cases it is unlikely that anyone would have enough sick leave to cover the rest of their working life.
Some people may see Centrelink as their safety net, but the reality is that a disability pension will not meet the needs of most Australians. If you have a mortgage to pay and a family to support, you may find that a disability pension falls well short of your real income needs.
Worker’s compensation is another form of safety net, however this only covers incidents that are work related. If you suffer an illness or are injured away from work, you will not receive anything in the way of worker’s compensation.
Why is income protection important?
If you were to suffer an illness or injury that leaves you unable to work ever again, or even just for a few months or a few years, the impact on you and your family can be financially devastating. It’s also an unfortunate fact that financial problems can lead into other problems.
By having the right income protection in place you can ensure that any disruptions to your income that occur due to illness or injury will not have a major negative impact on you and your family’s way of life.
This article is about income protection insurance and is general information only. It should not be treated as factual, as personal advice or be the basis of purchasing any insurance policy. Before deciding on an insurance policy read the PDS carefully and talk to a licensed insurance agent if you need further assistance. MoneyBuddy does not recommend insurance products or provide personal advice in regards to insurance products.