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Are you covered by income protection insurance?

Friday, 15th Oct 2010
Categories: Insurance, Newsletter

Poor Man

Your ability to earn an income is likely to be your biggest asset in life. A 30 year old with an average wage of $60,000 can expect to earn over $2,000,000 by the time they are 65.  It’s worth thinking about what would happen to the assets you have built up and, more importantly, your family, if you were unable to earn an income. How would you pay for weekly expenses and bills, let alone mortgage repayments and school fees? Hopefully you have put away some funds to help tide you over. But how confident are you that your savings will last the distance?

Fortunately there is a way you can protect your biggest asset. Income protection insurance can provide you with up to a 75 per cent replacement income if you are unable to work due to illness or injury. The benefits are yours to spend as you choose and premiums are tax deductible, reducing the overall cost of your insurance.

It couldn’t happen to me…

If you’re lucky enough to be fit and healthy, then it’s tempting to think that it will never happen to you. After all, no-one wants to focus on confronting issues such as illness or injury. But the unfortunate reality is that misfortune can strike at any age, when you least expect it.

More than 50,000 people were hospitalised due to transport accidents in 2005-06, 81 per cent of those were of working age*.  One in five stroke victims is aged under 55#.  And just under half the population with an arthritis-associated disability are aged 15-64^. The best time to take out insurance is when you are in good health. As you age, you can suffer health-related issues making it more difficult to obtain cover.

Dispelling the myths

Many people believe they are sufficiently covered elsewhere or that the government will step in, but your safety net may not be as robust as you think.

  • Sick leave entitlements: Typically, salaried employees can accrue up to 1 to 2 months sick leave over 4 to 5 five years with an employer.  However, this entitlement does not move with you when you change jobs, and a serious injury or accident may mean you are off work for much longer than your sick leave will cover.
  • Workers’ compensation: Covers illness and injury associated with the workplace but many serious accidents occur elsewhere, leaving those without cover vulnerable.
  • Insurance in superannuation: Superannuation plans may provide some insurance cover, but it is typically limited to death and permanent disability.
  • Private health cover: Limited to medical expenses such as hospital stays and does not extend to general living expenses.
  • Social security payments: Very restricted and unlikely to allow you to maintain your standard of living.

Income protection should be an integral part of your overall insurance needs, which can include life, trauma and total and permanent disability (TPD) cover.