When asked the question – “What is your greatest asset..?” – many will answer that it’s their family, or their home, or something different altogether, but the fact is that for most of us, our most precious asset is time. In relation to our personal finances, we relate this ‘time’ to our ability to earn an income, and that is exactly what we need to look to protect.
What Is Income Protection Insurance?
Income Protection insurance allows you and your family to continue to receive a regular income should an accident occur causing sickness or injury which prevents you from being able to work. Income Protection insurance will allow you to insure your current level of income up to a specified level, which is typically capped at 75% of your regular income, although in some cases it can be higher, and you can also choose the period to be paid for. This is generally capped at retirement age, which in most cases is 65 years old.
As is the case with most personal insurances, if you have financial dependants, it is always a sensible idea to review your options.
Why Do I Need Income Protection??
For an average person, working a 40 hour week from age 18 through to 65, they will work for 90,240 hours per year (assuming a 4 week holiday per year). As many of us already realise, time is our most valuable asset and can not simply be bought, so it’s important to ensure that you’re protecting your ability to earn an income for both yourself and your family.
If you’re self-employed and running your own business, or you’re the sole breadwinner for your family, income protection cover can be more important than ever.
Why Doesn’t Everyone Have Income Protection Insurance?
Some people choose to believe that their job is very safe so paying for income protection insurance seems like an unnecessary expense, however as has been proven over time there are very few jobs that are guaranteed for life. There are many issues that can occur preventing us from being able to work and we must remember that we are not invincible.
How Much Cover Should I Have?
To work out how much income protection insurance you should have in place, it’s important to have a monthly budget in place. If you don’t already have one, there are many great online tools and we can also help you create one with a budget template to work out your regular expenses. One you have worked out your monthly budget, you can then determine how long you would like to replace your income for and therefore what level of cover you should have in place. It could also be a good idea to ensure that any superannuation contributions and regular investments are covered also to ensure that you can remain on track to achieve your financial goals even in the event that an unforeseen event strikes. Some of the common items to cover include:
- Mortgage / Rent Payments
- Utility / Phone / Internet Bill Payments
- Personal Loan Payments
- Education Costs
- Groceries & Entertainment Costs
What Do I Need To Consider?
When it comes to deciding on your income protection insurance, there are many considerations, which is why it’s important to seek professional advice. Some of these considerations include the following:
- Stepped vs. Level Premiums
- Indemnity vs Agreed Value Policy
- Waiting Period
- Benefit Payment Period
- Inside Super vs. Outside
Is My Employer Cover Sufficient?
Many Australians also believe that their employers will cover them and they do not need to consider taking out their own income protection insurance, however, it is important to recognise that your employer will likely only pay you for a short time period whilst you are unable to work and that this is unlikely to continue for very long. If you are unable to work for an extended period of time, you may be left facing significant monthly expenses with no income to cover them.
Who Do I Speak To About My Insurance?
As always, it’s important to seek the guidance and advice of an experienced Australian financial planner who can explore your options and ensure that you have the right income protection insurance in place based on your personal circumstances.
Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.
Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.
Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.
General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.