Did you know that your ability to earn an income is your most valuable asset?

When thinking about your most valuable asset, your home or your car are probably the first things that come to mind. However, their value doesn’t come close to your ability to earn an income. Your income is by far the most valuable asset you have. Most people will have protection in place for their car and home but don’t have any insurance in place to cover their income in a situation where they were unable to work.

Think about it, over your lifetime, your earning capacity could amount to millions of dollars, putting the value of your home and other possessions well and truly in the shade. The table below shows how much you could earn by the age of 65.

The income you could earn by age 65

Current Income Age Now
25 35 45 55
$40,000 $3,020,000 $1,900,000 $1,070,000 $460,000
$60,000 $4,520,000 $2,850,000 $1,610,000 $690,000
$80,000 $6,030,000 $3,810,000 $2,150,000 $920,000
$100,000 $7,540,000 $4,760,000 $2,690,000 $1,150,000

Assumptions: Income increases by 3% pa. No employment breaks. Figures rounded to nearest $10,000.

What does income protection cover?

An income protection policy protects you if you are unable to work for an extended period of time due to illness or injury. Income protection usually pays a monthly benefit of 75% of your income.

How long does income protection last?

The length of cover will depend on the benefit period you select for your policy. You can usually choose from a range of benefit periods including a 2 year period, 5 year period or a period up to age 65. The shorter the benefit period selected the cheaper the premiums.

What is the waiting period for income protection?

A waiting period is the time you have to wait before receiving the benefits of an insurance plan. You can select from a range of waiting periods normally 14, 30, 60 or 90 days. You can even get a 2 year waiting period. The longer the waiting period the cheaper the premiums. When deciding on a waiting period you should take into consideration how long you could last without an income and how will you cover your expenses during this period should it arise. If you are willing to dip into savings or have a lot of sick or annual leave saved up you may consider a longer waiting period.

Here’s a tip: Premiums for income protection insurance are generally tax deductible.

How to structure of your income protection

You are able to structure an income protection policy within superannuation. You may consider this strategy if you are unable to afford the premiums with your cash flow. In this scenario, premiums would be paid from your super balance and will impact your  retirement savings. Seek expert advice to assess whether this strategy is a suitable option for you.

Choosing the right cover

Getting the right income protection is all about getting the right cover you need for yourself, your family and your assets – now and into the future.

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