In my initial meeting with a client I regularly ask the question, “what is your biggest financial asset?”. 9 out of 10 clients will answer “my house”, or if they don’t have a house, their answer will be “my car”. I then complete a quick calculation on the whiteboard with them: current salary multiplied by the number of years until age 65. Eg. a 35 year old client earning $100,000pa would be 100,000 x 30 = $3,000,000. When they see the figure it is nearly always dramatically higher than their house value, and it surprises them as not many people consider how much money they will earn whilst working. Also bear in mind that we have not taken into account potential pay rises or inflation over the period of time to age 65 so this figure will probably be even higher.
So as you can see, for the majority of people their biggest financial asset is their income. You need a form of income to be able to do everything; buy the groceries, pay the rates, send your kids to school etc etc. So how would you cope if your income stopped? Well firstly let’s consider why it might have stopped:
- You decide to cease work
Perfect! You’re in a position where you don’t need the employment income as you have another source of income to pay the bills.
- You get sick or injured and are unable to work
Oh no! This is a bad scenario which unfortunately happens to 1 in 3 Australians at some point in their working life.
If it is option B that stops your income, after using your sick and annual leave, how would you meet the daily, weekly, monthly regular expenses? This is where Income Protection (IP) will look after you. If you have an IP policy in place and get sick or injured leaving you unable to work, after a chosen “waiting period” it will provide up to 75% of your income each month while you can’t work. It will continue to provide this monthly benefit for 2 years, 5 years or until you turn 65 or 70, depending on the policy that you have.
The decision to take insurances in general normally comes down to cost. I have already shown that income is generally your biggest financial asset, so why have most people prioritised covering replaceable assets via “general insurances” (car, home and contents, etc.) over their non-replaceable selves and income? If you want to know the answer, it usually lies with our parents. When you get your first car they say “get the car insured!”, when you get your first house again their advice is “get the house insured!”, but when you got your first job did anyone tell you to get your income insured….?
If you don’t have your income protected then please speak with an Adviser. They will discuss your individual needs and provide a recommendation for the best policy and most suitable options for you. Depending on the structure of the policy you will probably find that the premiums are tax deductible too. Can you really afford not to have your income protected?