06 Apr Got it covered?
I’m often struck by how strongly Australians focus on the wealth-building side of their goals: they understand mortgages, they know about starting a business and they understand that regular contributions to super is a good idea. But look closer at these wealth-building ideas: they all require that you feed them with your cash or your hard work, and sometimes both.
It’s actually you and your income-generation that builds wealth. So what would happen if that capacity was taken away or reduced?
The way to protect income-generation is through an insurance called ‘life products’. They insure you and your earning capacity, and every Australian with debts and children should investigate where these products could fit in their financial plans.
The obvious one is life insurance which pays a nominated benefit to your next of kin should you die. Breadwinners with mortgages take these policies so that those left behind can clear debts and get the household in order following a death. Sometimes the breadwinner leaves behind a business and an insurance pay-out can keep the business going until it can be sold or wound up.
Another insurance that protects your ability to generate cash is income protection insurance. It provides an income should you be unable to work due to unexpected injury, illness or disease. Not everyone is under the Work Cover system, and those who are can only be covered for accidents at work. The cost of income protection is also tax deductible in many cases. Ask your financial consultant regarding this.
Trauma Insurance covers you when an illness such as cancer, stroke or heart attack keeps you away from work, and Total Permanent Disability insurance (TPD) ensures that in the event of a debilitating event, you and your family have funds to sustain the household.
And don’t forget mortgage protection insurance which clears the mortgage with a lump sum should you die, or makes the repayments if incapacitated.
A major insurer surveyed Australians a couple of years ago, and found that most people with life insurance only have it through their superannuation, and one third of those with life insurance don’t have sufficient cover to pay-off the mortgage.
When you first think about getting a life product, it’s because you buy a house or have a child. However, just having the insurance isn’t enough on its own; the crucial part of this exercise is having the right policy, with sufficient cover, providing income in the right circumstances.
Most people have no idea what they should be paying for life products and what should be included in their policies. There are strategies for overlapping different insurances to cover all situations and time frames, but most people wouldn’t know where to start.
This is one area where it’s worth seeing an expert adviser such as a financial planner or insurance broker. Getting advice is crucial if you’re self-employed or a business owner. Ask us for a referral to a Financial Planner.
Always remember that your ability to generate income is actually your greatest asset, and it’s worth protecting.