This article emphasises the likelihood of needing personal insurance to cover even simple living expenses – not to mention meeting other financial responsibilities.
What would happen if you couldn’t work?
If you were paid the average annual wage of $150,000 you could potentially earn over $11,800,000 over a 40-year working life based on a 3% annual growth. You would use this money to achieve your lifestyle goals, including daily living, family holidays, and to save for assets such as a house and a car. So what if you become injured or ill and lost the ability to earn. Even if this is only for a short period, it could have dramatic effects on your lifestyle.
How would you manage if you stopped earning?
There are a number of sources which could replace your income:
- Workers compensation – this can pay your basic wage and medical expenses until you return to work, providing it is a work-related injury or illness.
- Sick leave - you may have accumulated sick leave if you’ve been with the same employer for some years.
- Savings – if you’ve been money smart and put aside savings on a regular basis, you may decide to access them.
But is this enough to match your current lifestyle? You might have debts to pay and medical expenses, some of which may not be covered by Medicare or your private health fund. How will you do that?
Insuring the risk
Income protection insurance
usually pays up to 75% of your normal pay whilst you’re off work. You can tailor a policy to suit your situation. For instance,
- How long must you be off work before payments start? This can be as short as two weeks or as long as two years.
- How long will you receive the income? This can be for a short period (like two years) or until age 65.
Most policies will require you to be unable to do your own job although some include rehabilitation benefits as you gradually get back into the workforce.
Premiums are usually tax-deductible and the income is taxed in the normal way through the PAYG system.
Don’t become another statistic. Transfer the risk from you to the insurer, and sleep easy at night knowing your current lifestyle can continue in the event of an injury or illness. Contact your licensed financial adviser to enquire about investing in an income protection policy to suit your circumstances and your current responsibilities.
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