What is your single most valuable financial asset?
It’s not your house, your car, or your superannuation balance. It’s your ability to earn an income.
Your income is the engine of your financial life. It pays for your mortgage, funds your investments, covers your bills, and builds your retirement savings. Everything you are working to achieve is funded by your ability to show up to work and get paid.
Now, ask yourself: what happens if that engine suddenly stops?
What if a serious illness or injury prevented you from working for six months, two years, or even longer? Without a plan, your financial goals and family’s lifestyle would be at serious risk. This is the exact scenario that Income Protection insurance is designed to solve.
What is Income Protection?
Income Protection is a personal insurance policy that acts as your financial safety net.
If you are unable to work due to a significant illness or injury, the policy pays you a monthly benefit, typically up to 70-75% of your regular income. It’s like having a personal sick leave policy that can last for months or even years, giving you the financial stability to focus on your recovery without the stress of rushing back to work.
The Gaps in Your “Safety Net”
Many people believe they are already covered, but these common “safety nets” are often inadequate or don’t work the way you think they do.
- “I have sick leave.” Your sick leave will likely cover you for a few weeks, but a serious medical event (like cancer, a heart attack, or a major back injury) can easily keep you from working for six months or more. Your sick leave will run out long before you are ready to return.
- “I have TPD (Total & Permanent Disability) cover in my super.” TPD insurance is a different product for a different purpose. It pays a lump sum only if you are deemed totally and permanently disabled and unlikely to ever return to work. It provides no benefit if you are just temporarily out of action for a year or two.
- “It won’t happen to me.” The statistics show this is a risky gamble. In Australia, it’s estimated that 1 in 3 people will be off work for more than three months during their career due to illness or injury.
The Workers’ Compensation Myth
A common and dangerous misconception is relying on Workers’ Compensation.
Workers’ Compensation is not a complete safety net. It is a legislated scheme with a very specific purpose: to cover you only for an injury or illness that occurs at work or is a direct result of your job.
It provides zero protection if you suffer a serious illness (like cancer, a stroke, or a heart attack), or if you have an accident on your own time (like a car crash on the weekend, falling off a ladder at home, or a sporting injury). Relying on it leaves you completely exposed to the most common reasons people are unable to work.
How Does Income Protection Work?
When structuring a policy, you make decisions on two key features:
- Waiting Period: This is the time you must be off work before your payments begin (e.g., 30, 60, or 90 days). You can align this with your sick leave and emergency fund to reduce your premium.
- Benefit Period: This is the maximum length of time you can receive payments (e.g., 2 years, 5 years, or to Age 65). For true long-term security, a benefit period to Age 65 is the only option that protects you from a career-ending illness or injury.
A significant advantage of Income Protection is that the premiums for a policy held in your own name are generally tax-deductible.
Is Your Income Protected?
Your income is the foundation of your entire financial plan. An income protection policy is the one thing that ensures your plan doesn’t collapse if you are temporarily unable to work.
Contact us today for a review of your personal insurance. We can help you quantify your needs and ensure your most valuable asset is properly protected.