– to insure your most valuable asset!
While you are fit and healthy and there doesn’t appear to be any impediment to you staying so (and to earn an income), the question may well arise when considering life insurance needs – why income protection? On most measures, the most important asset most of us have, is our ability to earn an income (regardless of the amount of that income in any particular period). To test that, try determining what you will earn in your lifetime and measure that against any other asset you may have: on an average wage of say, $60,000 p.a. earned over a working life of say, 40 years, your health and ability to earn an income adds up to $2.4 million.
During that working period, emotional and financial dependants will place demands on the use of some of those funds; and as you commit to providing some level of financial independence in retirement, the importance of income protection insurance becomes more significant.
Why income protection – the needs
If you suffer an illness or injury that takes you out of work for an extended period, your dependants will need to be able to –
- Meet the monthly commitments to preserve their lifestyle
- Continue to pay the mortgage/ debt repayments
- Service the long-term investment needs your strategies for them require
- Meet the medical costs during the term of incapacity – and
- Manage the financial capacity to maintain these situations.
Why Income Protection – the benefits
Asset acquisition and wealth accumulation are fairly widely-held objectives in our society: protecting the ability to continue those strategies in the face of health- or accident-induced adversities is at least as important as protecting the assets themselves. Income Protection Insurance (also referred to as Salary Continuance Insurance in superannuation and some group policy situations) at the personal level; and Business Expense Insurance, particularly for small business owners and self-employed businesses – are key elements in providing that protection.
These insurance policies provide a continuing income stream during the period of incapacity (subject to the terms of the policy accepted) – and remove at least some of the financial stress that might otherwise inhibit the recovery process.
Why Income Protection – the terms
If you are relying on other benefits to see you through such periods, will they continue for the required period – and at a rate that will keep your financial plans ‘alive’? Consider:
- Sick leave: how long will it last – some superannuation funds only provide a benefit for two years; and then only after a 90-day waiting period (and at what rate will it be paid throughout that term)
- Special leave (can you rely on this for an indeterminate period of time)
- Existing insurance cover (do you have any life insurance that will provide an income stream, or a lump sum that can be relied on to provide continuation of your financial needs)
- How long will you need to have support.
Whilst the above matters have an impact on the premium/ cost of Income Protection insurance, their consideration in taking out this type of policy is important.
In business on your own account?
What would happen if you had to take time off work because of sickness or injury? Or worse, if you were unlikely to work again?
The consequences could often be dire – for you, your family, and if you employ staff, your employees.
Business Expense insurances allows you to insure business expenses to help keep your business viable if you can’t work because of sickness or injury. It provides a monthly payment if you are sick or injured, helping you cover fixed business costs including:
- staff salaries (non income-producing roles)
- rent on your place of business
- interest on borrowings.
Why Income Protection – premiums tax deductible
Premiums for Income Protection Insurance and Business Expense Insurance are tax-deductible in most instances (which could significantly reduce the effective cost to you of such protection).
For more information about Income Protection Insurance and Business Expense Insurance, refer to our website Library and Search ‘Income Protection’ and ‘Business Expense Insurance’; or either phone our office – on 07 3421 3456, or use the website Contact Us facility to arrange a meeting with one of our experienced advisers.
[This article was originally posted in October 2012: it has undergone occasional revisions, most recently in June 2017.]