Income Protection Insurance – Protecting Your Most Important Asset

Your ability to generate an income is arguably your greatest asset, yet only 31% of self-employed Australians and 6% of employees have income protection insurance[1] despite findings that indicate that one in three Australians will be kept from work by an accident or illness.

Imagine suddenly being unable to meet your financial obligations including mortgage payments, school fees and living expenses. In this article, we discuss important income protection information for employees and business owners  and to find out why an understanding of income protection is also relevant for retirees with adult children.

“She’ll be right, mate.”

There’s a worrying trend in Australia when it comes to financially protecting ourselves, with 95% of Australian families not having adequate levels of insurance.[2] Our “She’ll be right” attitude doesn’t match our reality. For example:

1. One in three Australians will be affected by an accident or illness that will keep them away from work for more than three months.[3]

2. It is estimated that 38% of working Australians would last less than a month without their regular income before needing to sell assets.[4]

3. It is estimated that 20% of mortgage defaults are due to an accident or illness of a person in the household.[5]

These statistics show how important it is to check that you have appropriate income protection insurance that safeguards your lifestyle – and that of your family – now and for the future.

Income protection insurance for employees

Income protection insurance is designed to protect your lifestyle to enable you to meet ongoing financial commitments such as mortgage repayments, school fees and living expenses. Income protection insurance usually pays up to 75% of your income in the event of an accident or illness, until you are able to return to work. You can also insure your future superannuation contributions. Policy terms vary and usually specify a benefit period of a maximum of two to five years, and an age limit of 60 or 65.

Income protection insurance for business owners

Income protection insurance is especially important if you own a business. It will cover your personal financial obligations, and also a salary to replace you while you are away. When considering the details of your insurance, you should consider the financial viability of your business as well as your personal financial obligations if you were unable to work.

Information for retirees with adult children

If you have an adult child with dependent children, it’s possible that they don’t have adequate insurance protection against being involved in an accident, becoming ill or death. As a grandparent, have you thought about how their underinsurance may impact you as well as them? Naturally, you would do everything you could to help if your adult child had an unexpected accident or became ill. But we all know that raising a family costs a lot of money.[6]

If something were to happen to your adult child whereby they could no longer earn an income, can you imagine the impact this could have on your grandchildren’s standard of living? And as a retiree, it may not always be possible for you to provide the financial assistance they need.

This is why an effective way to help your children financially is to make sure they’re adequately protected against accident, illness and death. For example:

  • Life cover can provide financial security for your child’s family in the event of their death, with a lump sum payment or instalments;
  • Trauma protection could provide a lump sum or instalments to help maintain the family’s lifestyle if your child was diagnosed with a critical illness;
  • Total and permanent disablement (TPD) cover could provide a tax-free lump sum or instalments if your child was unable to work due to illness or injury; and
  • Income protection insurance policies may cover up to 75% of their regular annual pre-tax income if they are unable to work due to illness, accident or injury.

A tailored solution

Your Stratus Financial Group Adviser can tailor an income protection policy for your (or you adult child’s) circumstances. The policy may cover additional health traumas such as heart attack, cancer or stroke. We may also be able to negotiate longer benefit periods than those offered in default super policies or other policies that are not underwritten. If you are a retiree, please contact us for suggestions on how you might approach a conversation about income protection insurance with your adult child, to encourage them to consider adequate cover to protect their family in the event of death, illness, accident or injury. Please contact Stratus today on (07) 3007 2007.

[1] TNS/IFSA investigating income Protection Insurance in Australia July 2006 and CommInsure 23/1/2008
[2] Lifewise/NATSEM Underinsurance Report – Understand the social and economic cost of underinsurance February 2010
[3] TAL and FSC Under insurance key facts study 2009
[4] Zurich Misinsurance Whitepaper February 2014
[5] Mortgage default in Australia: nature, causes and social and economic impacts, Australian Housing and Urban Research Institute, March 2010
[6] A 2013 AMP / Natsem (National Centre for Economic Modelling) report showed that it costs about $452,000 in 2013 dollars to raise two children from birth to age 20.

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Stratus Financial Group strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.

Taxation outcomes are illustrative only. Always confirm your tax position with a registered tax agent.