Most of us insure the things we own — our home, our car and even our valuables. But one of our most important financial assets is often overlooked: our ability to earn an income.
For most working Australians, regular income is what keeps everything else moving. It pays the mortgage or rent, covers household bills, puts food on the table, funds school costs, supports savings and contributes towards long-term financial goals.
That is why income protection insurance can play such an important role in a well-structured financial plan.
What is income protection?
Income protection insurance is designed to provide a regular benefit if you are unable to work for a period of time because of illness or injury.
Rather than providing a single lump-sum payment, income protection generally replaces a portion of your usual income for an agreed period, subject to the terms and conditions of the policy.
This can help you continue meeting everyday financial commitments while you focus on your recovery.
Without that financial support, an extended period away from work may quickly begin to affect savings, investments and other financial plans.
Why your income is worth protecting
Consider how much you may earn over the remainder of your working life.
Even a relatively modest annual salary, multiplied over 10, 20 or 30 years, can amount to a significant sum. Your future earning capacity may therefore be one of the largest financial assets you will ever have.
The question is not simply whether you could manage without your income for a week or two. It is whether your household could continue meeting its commitments if you were unable to work for several months — or potentially much longer.
Savings and emergency funds can certainly help, but they may not be designed to cover an extended period without employment income.
Not all income protection policies are the same
Income protection can be more complicated than it first appears.
Policies can differ considerably in areas such as the amount of income covered, waiting periods, benefit periods, definitions of disability, exclusions, premium structures and how benefits may interact with other sources of income.
Your occupation, age, income, financial commitments and existing insurance arrangements can also influence the type of cover that may be appropriate.
Choosing the cheapest policy without understanding the detail can create problems later. Insurance is ultimately about whether the policy responds when you need it most.
The value of quality financial advice
This is where working with a Financial Adviser can be particularly valuable.
A Financial Adviser can help assess the risks that could affect your financial position and consider how income protection fits alongside other types of personal insurance, such as life insurance, total and permanent disability cover and trauma insurance.
They can also help you work through important questions such as how much cover you may need, how long you could comfortably wait before receiving a benefit, how long benefits should potentially continue and how premiums fit within your overall budget.
Just as importantly, your adviser can help you understand the terms, conditions and limitations of the cover being considered.
Quality advice is not simply about purchasing an insurance policy. It is about building an appropriate protection strategy around your circumstances.
Review your cover as life changes
Income protection should not necessarily be something you arrange once and then forget.
Your income, mortgage, family responsibilities, occupation and financial position can all change over time. Regular insurance reviews can help ensure your protection continues to reflect your circumstances.
Protecting your income may never feel as tangible as protecting your home or car, but its impact can be far greater.
A conversation with a qualified Financial Adviser can help you understand your risks, explore your options and make informed decisions about protecting the income that supports your lifestyle today — and your financial plans for tomorrow.
This information is general in nature and does not take into account your personal objectives, financial situation or needs. Consider seeking professional financial advice before making decisions about insurance.
If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.
This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.
(Feedsy Exclusive)