Are You Protecting Your Most Valuable Asset?

It is widely quoted that for most Australians, their ability to earn an income is their most important asset. As a risk insurance adviser, I find it staggering when people are not willing to pay for income protection to protect their most valuable asset; but on the other hand, they are more than willing to pay for car insurance. A car that is likely worth peanuts when compared to their income.

Sadly, only 31 per cent of Australians have a form of income protection, compared to 83 per cent who have purchased a form of car insurance (lifewise.org.au). In a recent client meeting, while reviewing a client’s current protection plan, we worked out that they are currently spending more on protecting a car that is worth $40,000, compared to his salary that is worth close to $3 million until retirement at age 65 (excluding pay rises, CPI and super contributions). You can imagine the client’s surprise when they looked at it from that angle! As an experienced risk adviser, this is often a familiar scenario when reviewing my clients’ protection plans.

Example: A 30-year-old sales manager earning $80,000, driving a brand-new KIA Sportage valued at $40,000. The annual car insurance premium was some $1,300. Based on his current income, his earnings potential until retirement is a staggering $2,759,120. The client only had the insurance cover provided by their employer for $5,000 per month for two years. So, in a worst-case scenario, if the client had an injury or illness that prevented him from working again, he would unfortunately only receive $120,000, out of the $2,759,120 he could potentially earn. Needless to say, the client suddenly becomes very worried about the gap in their protection plan. With the client now very aware of their risk and under insurance, we were able to help him secure income protection insurance that would provide a replacement of income through to age 65; protecting their ability to earn $2,759,120 for the cost of a coffee per day.

It is important to consider that without your income, you may not be able to maintain your current lifestyle. In this case, the client was more than happy to use a small portion of their income to protect this asset. In fact, as the client pointed out they are already saving 9.5 per cent of their salary towards retirement, but if he became unable to work, this contribution would stop. How would you and your family manage without your income? In 2016 there were 63,580 income protection claims paid in Australia. We do live in a fortunate country, but currently the maximum Centrelink disability pension you can get is $23,254 per year. For most of us this would simply not be sufficient to uphold current living standards.

As we are now in a new year, make sure that a review of your current protection plan is one of the new year resolutions that you keep. It will provide you and your family with peace of mind. For more information, or to discuss your current circumstances, contact your insurance adviser.