It’s the middle of the night and you’re jolted awake by extreme pain in your chest. You feel like the life is being crushed out of you … you immediately realise you’re having a heart attack. Your partner frantically phones 000 and as you lay clutching your chest waiting for the ambulance to arrive all you can think about is how your family will be supported if you die.
The pain intensifies.
Hopefully this will never happen to you, but what if it did? Take a moment to think about how your family’s living expenses would be met if your income stopped tomorrow.
The average Australian household spends up to one third of its gross income on mortgage repayments. Most of us would rely on our regular income continuing indefinitely in order to meet such an expense. And at this point we haven’t even got to putting food on the table.
Income protection (or “salary continuance”) insurance policies usually provide up to 75% of your salary or business income in the event that you cannot work due to illness or injury. Of course, you might have sick leave, other compensation arrangements or perhaps a cash reserve to rely on for a while, but what happens when these run out?
Transfer the risk
Just like any other insurance, protecting your income is about transferring risk to someone else. By paying a premium each month, you have the security of knowing that should anything happen – your car is stolen, your home damaged by fire or you suffer a serious illness or accident – your financial loss will be minimised.
Interestingly, almost 90% of Australians consider the cost of car insurance worth having, yet only 6% of us insure our income. And what about the apparent contradiction that when you buy insurance you hope you never actually have to
use it? Does this mean it is a waste of money? Why take that risk when having peace of mind is worth far more than dollars? Once you have insurance in place, you can get on with enjoying life, and if you do get sick or badly injured, money will be one less thing to worry about.
Sources: HIA / Commonwealth Bank Affordability Report, February 2008
Insurance Council of Australia, Consumer Tracking Survey, January 2006.
Roy Morgan Research Insurance Report, September quarter 2006