What is the value of insurance?22 Aug 2018 5 min read
What’s the value of your most priceless asset?
We tend to insure our biggest assets – our home and our car, and these days even our mobile phones.
But why do we take out insurance? The most common reason is “peace of mind” – the comfort that comes from knowing that, if something you value is damaged, stolen or destroyed, you’ll have the financial resources to repair or replace it.
We also insure ourselves against potential loss, so we make sure we’re covered if we inadvertently damage someone’s Porsche in a road accident, or if we travel somewhere to do something risky – like skiing – or to cover emergency overseas medical expenses.
But many of us forget about our biggest asset – the one that could also result in the biggest loss financially: our ability to earn an income.
Understanding the value of income potential
Unless you’ve inherited sizeable wealth, it’s likely that your earning capacity far exceeds the value of any other asset you own.
Here’s an example:
Jo is a 35-year-old child-care supervisor, with a six-year-old son. She has one year left of repayments on a car worth $15,000, and the home she shares with her husband is now worth around $800,000, minus the couple’s mortgage of $300,000. Jo’s super balance is around $60,000.
Her income is $45,800 p.a. If Jo works until she retires at age 70, she has 35 years of working life left. That means she will potentially earn more than $1.6 million between now and when she retires – and that doesn’t include any pay rise.
Jo’s ability to earn a wage is a far bigger asset than everything else she owns combined.
Unfortunately, we can’t predict the potential for any of us to suddenly lose our ability to earn an income, it’s usually totally unexpected. The most drastic event would be premature death; but more commonly, major illnesses or befalling an injury, are two events that could leave you unable to work either for a lengthy period or with the possibility of never being able to return to work.
Serious trauma or major illness has the potential to undermine everything we work for, including our ability to pay our rent or our mortgage and cover our living expenses, provide for our family and even our ability to fund our retirement.
Losing your ability to earn a living for more than a few months can result in huge financial pressure. And recovering from a major illness such as cancer can be made so much harder if you’ve also got the stress of losing your house or being unable to contribute to your family.
That’s why so many people are now taking out, not just life and disability insurance, but also income protection insurance. Life and disability insurance plans help you make sure the security of your income is protected for you and your family’s future either through a lump sum or income stream benefits that can kick in if something disastrous occurs.
It’s important to know that there’s a few different types of cover. Total and permanent disablement (TPD) insurance will cover you for major accidents – such as losing arms, legs or the use of your eyes – where you are unlikely to be able to return to work again.
Trauma insurance is offered by some insurance companies and can provide cover for many illnesses (particularly cancers, strokes and heart attacks) that can impact on your income. While increasing medical advances means we’re far more likely to survive these diseases, they can still leave us with ongoing medical bills and costs to adjust our lifestyles (such as wheelchair ramps or needing to pay the stamp duty in order to move to a more suitable home).
Probably the most important personal risk insurance is income protection, which usually pays up to 75 per cent of your pre-incapacity income for an agreed period, until you are able to return to work. Income protection insurance provides you with an income if you are temporarily unable to work due to an illness or injury. You can generally choose both the length of time before payments kick in and for how long the benefit is paid.
Income insurance through super
Wading through policies to find the best one, and needing to pay the extra premium each month for insurance is often the biggest barrier to signing up for income protection insurance.
NGS Super recently took out the Chant West ‘Insurance Best Fund 2018’ award for the quality of our insurance products, improvement in design, delivery and member servicing. Our insurance offering provides for income protection (IP) insurance for eligible members which can provide a monthly benefit of up to 90 percent of your pre-incapacity income.
One of the innovative features of NGS Super’s insurance arrangements is we provide a needs-based insurance package to protect you throughout your working life. The cover you receive changes automatically depending on your age and as you approach retirement.
If you’d like to have a chat or learn more, call 1300 133 177. Or find out more about our award winning insurance here.