Protect your income and protect yourselve from debt

Research prepared by Rice Warner indicates that over half of Australian families would run out of money, after only a single month without work.

This is an extremely worrying thought since the statistics for illness, injury and death speak for themselves.

Risk of illness: In 2004-05, an estimated 77 per cent of Australians had a long-term medical condition; that is, a disease or other health problem that had lasted, or was expected to last, 6 months or more. [2]

Risk of injury: Injury accounted for over 1 in 20 of all hospitalisations in Australia in the financial year 2005-06, with 400,000 admitted patient episodes that year. [3]

Risk of death: About 25 per cent of males and 15 per cent of females in 2005 were of persons aged less than 65. [4]

Australians are the first to admit they would struggle financially should their income stop due to a serious illness or injury. According to The Lifebroker Research Report 2010, nearly half of respondents said they and/or their family would 'not cope well' or 'not at all' financially, should they stop earning an income for more than three months due to injury, illness or death.

As we grow older, we come to realise these statistics aren't made up. Our friends and family begin to fall victim to serious illness and injuries. Taking out Income Protection Insurance can help you and those dependant on you rest easy at night with the thought they will be protected, no matter what the future will bring us.

When you start to consider whether income protection is worth the money, you need to ask yourself how long could you survive without your income?

Footnotes
[1]
Rice Warner for IFSA, A Nation Exposed, August 2005

[2]
Australia's Health 2008, Australian Institute of Health and Welfare Report, Chapter 2.3, Long-term conditions

[3]
Ibid

[4]
Australia's Health 2008, Australian Institute of Health and Welfare Report, Chapter 2, Mortality

The interesting thing is that trauma insurance pays a lump sum in the event that you suffer a medical trauma that impacts your life and lifestyle. This is great because that's when you need it most. Over 50 different trauma events may be covered including diabetes, Alzheimer's disease, loss of limbs, stroke, heart attack, cancer, and brain tumors.

You and your family can use the lump sum to:

Pay for lifestyle changes and rehabilitation. Some medical conditions can affect your mobility or cause disablement and you may need to purchase items or modify your home to help you cope with these changes, allow you, and your partner if necessary, to take some time off work to assist in recovery, and pay off debts.

It should be noted that trauma insurance is not a replacement for income protection insurance or private health insurance as I discussed above. It's designed to help pay off debts and the costs of rehabilitation. You could use the money to pay for specialists or medical bills, make modifications to your home, pay off your mortgage or cover rental payments.

Income Protection pays out a monthly benefit, in the event that a person cannot work due to sickness or injury. Having the TPD insurance, as discussed above, will cover your medical expenses but not your living expenses. Imagine that you had to stop working for 12 months because you've been diagnosed with diabetes. Once you've exhausted your sick leave and annual leave, would you then have enough savings to support yourself? Or would you have to sell the house and live off the proceeds? Maybe you can survive on a government benefit of $500 per fortnight?

What if you didn't need to exhaust any of those options because you have income protection?

One of the smartest choices a person can make is to take income protection. Instead of just providing a benefit for your minimum loan repayment like loan protection insurance, income protection covers 75% of your gross annual income. This means you can continue to live the lifestyle you are accustomed to, without having to make sacrifices (like giving up the family home).

Overall, income protection insurance providers take all of an individuals risk factors and determine what the likelihood is that they will need to make a claim from the insurer. Based on the determination, the insurance provider can calculate how high the premium needs to be to make it worthwhile for them to insure the individual.

Life insurance pays out a lump sum cover in the event of death or terminal illness, this is designed to pay out any debt an individual may have. This means your family is able to keep your home and not have to worry about expensive mortgage repayments on only one or even no income.