Jovan Cvetkoski: Here's why every Australian worker should have income protection insurance

West Australian

5 hours ago

Have you ever thought about what might happen to you and your family if you suddenly couldn't work?
Whether that's due to an illness, accident, redundancy or a sudden but important caring role. How would you cope without an active income?
Would you sell your assets? Rely on government payments that are considerably less than your current income or move back in with your parents?
Most of us would never consider driving around in our car uninsured, yet only one in three Australians insure their most important asset — their ability to earn an income.
Many people I talk to say: 'Well, I own my house.' But unless you're one of the very lucky ones, unfortunately you don't own your house — the bank does. A mortgage is not a financial plan.
In Australia we protect our health with private health cover, we protect our cars with car insurance, our home with home and contents insurance, so why don't we protect our income? Because when you really get back to basics, your income is your biggest asset.
It pays for your home, your family, your weekends, puts food on the table and pays for the kids' school fees. I believe Aussies are chronically underinsured.
Here's why you need to consider income protection insurance
Aussies are known all over the world for our laconic 'she'll be right' attitude and most of us truly believe it won't happen to us. And while you have to admire our optimism, it does indeed happen to many of us.
Australians suffer from a bit of inertia when it comes to insurance. Many of us have a general lack of awareness about what types of cover are available and what they're for.
There's also confusion over costs. Many Australians believe insurance is expensive, but in reality it's very affordable and has become less inexpensive in recent years as we tend to live longer.
While it's often a difficult topic to broach as it involves thinking about getting sick or even dying, it's the best gift you can give your family because they won't have to worry about paying the bills.
But unfortunately, when cost of living is tight, that's when things like insurance — often seen as a non-essential — get cut from household budgets. But it's also when we need it most.
1.
Life and Total and Permanent Disability insurance
Covers you for:
2.
Trauma cover
Covers you for:
3.
Income protection
Covers you for:
I unfortunately see a lot of people who need to claim income protection and (for those with it) the financial stress is alleviated, allowing them to focus on recovery.
This heavily depends on your circumstances, but you generally require enough cover to pay out a mortgage, cover funeral and medical costs, maybe keep the kids in private school and/or provide an income for your spouse.
You will require the most cover in your late 30s to early 50s when debt is at its highest, living off one income and paying for school fees.
Insurance levels, like other parts of your financial life, should be reviewed regularly. As kids get older and debt is reduced the level of cover required can often also be reduced.
We never know what's around the corner for us, but having income protection insurance is one thing we can control, and it means no matter what happens we can always roll the dice in our favour.
Jovan Cvetkoski is a financial adviser and director at Knight Group in Perth