Care for your wealth like you care for your health

Tips

Health insurance is a good start but it doesn’t complete your financial security


The normal costs of living can quickly mount up if you're unable to work due to illness or injury. Your health insurance covers your medical bills but isn't going to help with your mortgage, grocery bills and school fees. For that, you need income protection. 

Your most important asset

Your ability to earn an income is your most important asset. It's a cliché but it's true. The income you generate every month is what makes your entire lifestyle possible. Without it, things get very difficult, very quickly. 

Ask yourself – how long do you think you could continue in your current lifestyle with zero income? A few months? More? Less? How drastically would you need to change your lifestyle in order to manage without an income? Do you want to be forced into making those changes while you're coping with an extended illness or injury?

Nobody plans to spend an extended period out of the workforce due to illness or injury but then, nobody plans for their car to be stolen. You insure your car anyway – just in case. You could mount a pretty convincing argument to say that losing your income would have a far greater impact on your lifestyle than losing your car. If you have car insurance, why don't you have income protection? 

Scary statistics

It's at this point in the article we're obliged to include some scary statistics but we'll try not to labour the point. In 2013, 352,900 Australians retired early due to sickness or injury. That doesn't include people who 'only' had to take a year or two off work to recover. (ABS - Retirement and retirement Intentions July 2012 to June 2013) And the average age for retirement due to poor health is 53. 

You'll find that a little bit of planning will provide you with a whole lot of peace of mind.

The point is that people do have to leave work due to illness or injury – sometimes for an extended period; sometimes permanently. It actually happens quite a lot. It's certainly common enough to make it worthwhile putting in place a valid contingency plan. 

How does income protection work?

Income protection is relatively simple. It pays you a percentage of your salary (normally 75%) while you're unable to work due to illness or injury. There are two key variables – waiting period (normally a choice between 30, 60 and 90 days) and benefit period (normally a choice between two years, five years and to age 65). 

For example – if you choose 30 days/five years, your income protection will kick in after you've been off work for 30 days and will continue paying 75% of your salary until you return to work or for five years, whichever is sooner. That means it will stop after five years, even if you still can't work. 

Obviously your choice of waiting period and benefit period will affect the cost of your premium. Shorter waiting periods and longer benefit periods mean higher premiums.

While that may sound relatively simple, you should get professional advice to ensure that the cover you choose meets your needs. There are other terms and conditions which are not quite as simple and which your adviser can explain to you. The difference between 'own occupation' and 'any occupation' for example, can be crucial. As can the definition of being able to work. 

Peace of mind

Life's too short to spend too much time dwelling on the potential impacts of illness and injury. Speak to your financial adviser or risk specialist about how to protect financial wellbeing from unforeseen circumstances. You'll find that a little bit of planning will provide you with a whole lot of peace of mind. And then you can go back to enjoying life and looking forward to the future instead of worrying about it.

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