How to safeguard your most valuable asset (i.e. your ability to earn an income)
Most people will earn a fortune between now and when they retire. And yet many people neglect to insure their ability to earn an income.
This is despite statistics which show that:
- Every working Australian has a one in three chance of becoming disabled for more than 3 months before reaching age 65*
- More than half of all serious accidents happen outside of work – when workers’ compensation doesn’t apply**
If you suddenly had no income due to illness or accident, how would you – and your family – cope? Could you afford to pay the mortgage, your superannuation, school fees, living expenses etc? The solution is income protection insurance.
This insurance provides a monthly payment of up to 75% of your pre-tax income in the event you are unable to work due to sickness or injury. Many policies also include payments for rehabilitation to help you get better sooner. Importantly, the premiums for income protection insurance are tax deductible for most people.
* Source: Australian Institute of Actuaries: Interim report of the Disability Committee 2000
** Source: Australian Bureau of Statistics National Health Survey 1989 – 1990
| How much will you earn from now until retirement+? | ||
| Income p.a. | Age Now | |
| 30 | 40 | |
| $60,000 | $3,365,096 | $1,786,685 |
| $80,000 | $4,486,795 | $2,382,246 |
| $100,000 | $5,608,494 | $2,977,808 |
| $150,000 | $8,412,741 | $4,466,712 |
+Assumes income increases each year by 4%. Retirement age 60.
The two year under-insurance trap
Some people have basic income protection insurance through their employer’s super fund. But this insurance generally pays a benefit for a maximum of only two years if you were to suffer an illness or accident. This means that if you are unable to return to work after two years you may not have a source of income. By taking an additional policy with a benefit period of up to age 65, but starting after a two year waiting period, you can remove this risk in a very cost effective way.
By Luke Sheehan ^
Strategic Guidance Group (www.strategicguidance.com.au)
ph: 03 8738 1219 e. luke@strategicguidance.com.au
Australian Unity Personal Financial Services
^ Luke Sheehan is an Authorised Representative of Australian Unity Personal Financial Services Limited (AUFP) ABN 26 098 725 145, AFSL 234459. This information has been prepared by AUPFS. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current laws and their interpretation.
This information has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Because of this you should, before acting on it, consider its appropriateness, having regard to your objectives, financial situation and needs. Past performance is not an indication of future performance.
