Income Protection Information
If you’re employed or self-employed, you should consider Income Protection Insurance.
When it comes to protecting your family and your assets, making proactive decisions goes a long way to ensuring that you achieve the lifestyle that you have always dreamt of. Today we are discussing the benefits of Income Protection Insurance and we will provide you with a real-life case study that demonstrates the value of it.
Insuring your home, contents, life, cars, boats and even pets are commonplace. Yet still, so many Aussies don’t take the steps to protect what is potentially their greatest asset – their ability to earn an income! So, let’s break this down. If you got sick or injured, and you couldn’t go to work for an extended period of time, how would you pay your bills, put food on the table and meet your mortgage repayments? Without an income, you could run down your savings very quickly and face financial difficulty.
This is not a risk worth taking in life! Don’t put off ensuring that you are adequately covered in the event that an unforeseen tragedy occurs, and you are left unable to work. Instead of putting your family’s lifestyle at risk, by simply taking out Income Protection insurance, you can replace your lost earnings while you recover by receiving a monthly benefit of up to 75% of your income.
Most Income Protection policies offer a range of waiting periods before you start receiving your insurance benefit (with options normally between 14 days and two years). You can also choose from a range of benefit payment periods, with maximum cover generally available up to age 65.
At Wealtheon one of our advisers can work with you to determine the impact that an Income Protection insurance policy would have on your lifestyle and your family. We will also conduct regular reviews of your lifestyle and financial situation to ensure you remain suitably covered as your insurance needs change over time.
It is often quite hard to picture the importance of protecting your income. The table below gives you an example of how much you could earn by age 65. For example, if you are currently 35 and earning $80,000 per annum, you could earn around $3.8 million before you turn 65. Isn’t that worth protecting?
How much will you earn by age 65?
| Current Income (pa) | Age now | |||
| 25 | 35 | 45 | 55 | |
| $40,000 | $3,020,000 | $1,900,000 | $1,070,000 | $460,000 |
| $60,000 | $4,520,000 | $2,850,000 | $1,610,000 | $690,000 |
| $80,000 | $6,030,000 | $3,810,000 | $2,150,000 | $920,000 |
| $100,000 | $7,540,000 | $4,760,000 | $2,690,000 | $1,150,000 |
Assumptions: income increases by 3% p.a. No employment breaks. Figures rounded to nearest $10,000.
We believe the best way to demonstrate the true value of Income Protection insurance is to provide you with a real-life case study of one of our valued clients and the benefit that the insurance had on his life.
Ben works full-time and earns a salary of $90,000 p.a. He owns his own home worth $500,000 and has a mortgage of $350,000. If he’s unable to work due to illness or injury, Ben wants to be able to meet his living expenses and mortgage repayments without having to eat into his limited savings.
While going through Ben’s detailed goals and financial situation, we recommended he take out Income Protection insurance to cover 75% of his monthly income. Ben was involved in a serious car accident that left him hospitalised and unable to work for 6 months, shortly after he took out income protection.
The silver lining in this tragic situation was that because Ben had taken out Income Protection insurance, he received the full benefit of $5,625 per month for 5 months after his initial one month waiting period (throughout this period of time he was covered by sick leave from his employer). As a result, Ben received a total income of $35,625 during the six months he was off work.
If Ben had not taken out Income Protection insurance, he would only have received his small sick leave payment of $7,500 and would have struggled to meet his living expenses, mortgage repayments and out-of-pocket medical costs.
Now, we know that no one wants to pay for insurance premiums. But for what is a realistically low cost, you can ensure that you, your lifestyle and your family are protected against the huge impact your loss of income would be if something tragic occurs. The value you receive from that protection and peace of mind by far outweighs the cost.
This case study highlights the importance of speaking to a financial adviser about protecting your greatest asset – your income! An adviser can also address a range of potential issues and identify other suitable protection strategies tailored for your specific goals and situation.
Here are some of our most valuable ‘tips and traps’ to watch out for when looking into Income Protection insurance:
- When choosing a waiting period for your Income Protection insurance, it’s important to take into account any sick leave and related benefits provided by your employer.
- Income Protection insurance premiums will generally be lower if you choose a longer waiting period and a shorter benefit payment period.
- It may be more cost-effective over the long term if you pay level premiums, rather than stepped premiums that increase each year with age.
- If you take out Income Protection insurance in a super fund, you can arrange to have the premiums deducted from your investment balance without making additional contributions to cover the cost. This can help you afford insurance if you don’t have sufficient cash flow to pay for it outside super.
- If you are the primary income earner, you should also consider insurances that can provide a payment to clear your debts in a range of circumstances and enable your family to meet their ongoing living expenses in the event of an unforeseen tragedy.
- If your partner is not working, you should consider insurances that can provide a payment to cover medical, childcare and housekeeping expenses, in the event that your partner becomes critically ill or die
For further information, contact Kris from Wealtheon Pty Ltd, authorised representative of Lifespan Financial Planning Pty Ltd AFSL 229892, on 1800 577 336 or email hello@wealtheon.com.au.
Have some questions? Want to know how it applies to you? Want a review of your personal situation? Click here to book a Free 15 Minute Discovery Session, give us a call on 1800 577 336, or email us at hello@wealtheon.com.au.
Information on this site may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.