Your biggest asset is your ability to earn an income. Many people are simply not aware of the benefits of having Income Protection or they do not see it as a necessity. However, there are several reasons why income protection is just as important as other insurance items, such as your car, contents, or your home.
We reached out to the team at Logiro to help you better understand the reasons to consider Income protection insurance including being able to manage debts, having piece of mind, ability to pay expenses, focus on recovery if you are injured and being able to afford loan repayments.
Income Protection – why it’s such a valuable asset
When we first enter the workforce or start an enterprise of our own, we’re typically focused on growing wealth and protecting those assets that we acquire along the way with insurance – a car, boat, house and home contents. However, your ability to continue to service those premiums, replace assets as they age and meet your ongoing living expenses until you stop working is often overlooked. This is where income protection cover comes into play – it protects your most valuable asset – YOU. It also can stop you needing to sell your assets to meet your ongoing expenses.
Income protection cover is not something for ‘the oldies’ or ‘the wealthy’ – the best time to consider this type of cover is as soon as you commence working, either for yourself or someone else.
Let’s tackle a common misconception upfront – this type of insurance is NOT only for those who receive a salary from an employer.
Income protection is a valuable tool to protect anybody’s ability to earn a regular pay packet. It’s typically used to replace up to 80% of your current income while you are unable to work due to sickness or injury – for the short or long term. In the unfortunate event of you being unable to return to work after your illness or injury, some income protection policies may replace your income up until age 65 (or even age 70 with some policies).
If you’re self-employed as a sole trader or director of your own business, this cover can provide you with income replacement for more than the amount that you are currently drawing as salary from your business. The amount you can insure could also include any ‘added back’ expenses that the business is currently funding for you, such as car expenses. Income protection cover differs from business overheads cover – income protection can pay you a monthly benefit for an extended period of time rather than simply covering business costs for up to 12 months.
There’s a range of considerations when establishing a policy to protect your income and seeking guidance from a qualified financial adviser is a good starting point. They’ll help you to understand:
- Should you hold this cover inside your superannuation so premiums are paid from your retirement savings.
- Are you better off paying for premiums personally (or by your business) to receive tax deductions.
- What level of cover you need to meet your ongoing financial commitments – not everyone needs to cover 80% of their current income.
- How to influence the premiums by matching how long you can afford to wait to claim.
- Are additional ‘ancillary’ options worthwhile considering – such needlestick injury and waiver of premiums upon claim.
- Will your stay-at-home spouse’s illness or injury impact your ability to earn an income at your current level – don’t underestimate how much it costs to replace their contribution.
- As a self-employed person, what evidence you’ll need to be able to satisfy the insurer of your pre-illness or injury income.
Don’t overlook what is probably your most valuable asset – your ability to earn a regular income. Reach out if you need guidance on who to approach to consider your options.
Thank you to the team at Logiro for your helpful and informative insight on this topic.