Protect your greatest asset – your income

Working is easy when you are in full health, but no one is protected from unexpected health issues.

If you’re employed or self-employed, you should consider income protection insurance. This strategy would allow you to receive a portion of your income even when you are unable to work due to illness or injury. The best solution is to get an expert opinion from your financial adviser so that you can protect your and your family’s lifestyle.

What are the benefits of income protection?

By using this strategy, you could:

  • receive up to 75% of your pre-tax income if you are unable to work due to illness or injury, and
  • meet your living expenses while you recover.

How does the strategy work?

Many people insure their home and contents, even their life. Yet, all too often, they don’t adequately protect what is potentially their greatest asset – their ability to earn an income.

Think about it this way. If you are unable to work for an extended period due to illness or injury, how will you meet your mortgage repayments and other bills and expenses? Without an income, you could run down your saving very quickly and face financial difficulty.

Rather than putting your family’s lifestyle at risk, by taking out income protection insurance, you could receive a monthly benefit of up to 75% of your income to replace your lost earnings while you recover.

Most income protection policies offer a range of waiting periods before you start receiving your insurance benefit (with options normally between 14 days and two years).

You can also choose from a range of benefit payment periods, with maximum cover generally available up to age 65.

A financial adviser can help you determine whether you need income protection insurance. They can also review your insurance needs over time to make sure you remain suitably covered.

What is your future earning capacity?

If you’re in any doubt about the importance of protecting your income, the table below shows how much you could earn by the time you reach age 65.

For example, if you are currently 35 and earn $80,000 pa, you could earn around $3.8 million before you turn 65. Isn’t that worth protecting?

income protection earning potential

Case study in income protection

Leanne works full-time and earns a salary of $90,000 pa. She owns a home worth $500,000 and has a mortgage of $350,000. Is she’s unable to work due to illness or injury, she wants to be able to meet her living expenses and mortgage repayments without having to eat into her limited savings.

After assessing her goals and financial situation, her financial adviser recommends she take out income protection insurance to cover 75% of her monthly income. Shortly after taking out the insurance, Leanne is involved in a bad car accident and is unable to work for six months.

Because Leanne had income protection insurance, she receives the full benefit of $5,625 per month for five months after her initial one moth waiting period (where she’s covered by sick leave from her employer). As a result, Leanne receives a total income of $35,625 during the six months she’s off work – consisting of a combination of sick leave and income protection benefits.

Benefits for Leanne thanks to income protection
Benefits for Leanne thanks to income protection

If Leanne had not taken out income protection insurance, she would only have received a sick leave payment of $7,500 and would have struggled to meet her living expenses, mortgage repayments and out-of-pocket medical costs.

Note that this case study highlights the importance of speaking to a financial adviser about protecting your income in the event of illness or injury. A financial adviser can also address a range of potential issues and identify other suitable protection strategies.

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the Oreana Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Gordon Thoms and David Conte of Calibre Private Wealth Advisers are Authorised Representatives of Oreana Financial Services Limited ABN 91 607 515 122, an Australian Financial Services Licensee, Registered office at Level 7, 484 St Kilda Road, Melbourne, VIC 3004. This site is designed for Australian residents only. Nothing on this website is an offer or a solicitation of an offer to acquire any products or services, by any person or entity outside of Australia.

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