Is your biggest asset insured - article in Canstar
In a guest post published yesterday by Canstar, Paul Feeney sheds light on the fact that three quarters don't have income protection insurance, and how that affects our financial fitness as a country, not to mention risking our families' quality of life:
Australians are famous for our laidback attitude to life, but are we taking it too far?
As one of the most underinsured nations in the developed world, it would appear we are.
When it comes to your income, you really need to be more cautious. Get seriously sick or injured and your most important asset – your ability to earn an income, is in jeopardy. Is your sick leave going to cover you for months or even years?
If you are a graduate with a bachelor degree you are likely to earn over $2.9 million over your working life. That is a lot of cash. And you need to protect it!
This is where income protection insurance comes in. It basically gives you a monthly payment (replacing your salary) that can be used to maintain your lifestyle, but more importantly cover any of your outgoings - groceries, mortgage payments, school fees – even your credit card bill.
Do I need it?
If you don't have savings to cover you for a long stretch off work (due to illness or injury), the short answer is yes.
If you are self-employed or run a small business, it is essential.
Check with your employer to check how much sick leave cover they would provide. You might come away feeling a little exposed.
What to look out for…
The fine print!
It is tedious, but you really need to be clear on what you are covered for. There are too many ‘after the fact’ horror stories out there. Some key questions to ask include:
- How much will my premiums be?
- How long will I wait for a pay out?
- How much will I get?
- How long is it paid out for?
- What are the exclusions (remember the fine print)?
- Is the payout based on my earnings from the previous year (indemnity value) or a fixed payout (agreed value)?
How much cover do I need?
It might depend on what you can afford. A basic policy is only going to cover a limited range of scenarios, but it will be cheaper than a comprehensive one. The latter will cover you for a wider range of events but expect higher premiums. You could also extend the waiting period to reduce your premium, if you have a solid savings foundation to get you through a few months.
First step will be to take out income protection inside your super fund - it won’t impact your monthly cash flow (premiums are paid by your super fund).
If you are feeling a little underinsured why not find out a little more in our insurance section.