Most people dream about not having to work anymore – but have you ever thought about what would happen if, for some unexpected reason, you could no longer earn an income?
It was the late 1990’s and I was in my final year of university when my Dad suffered a major and unexpected heart attack. He was 48 years old.
Thankfully Dad received prompt medical attention, and the prognosis after undergoing bypass surgery was positive.
But a lengthy recovery and rehabilitation process meant it was five months before he was able to return to work.
As a long term employee of a government department, Dad was fortunate enough to have months of accumulated sick leave. Without that, I’m not sure what we would have done. Mum and Dad still had a mortgage, my brother and I were full-time uni students (eating our parents out of house and home!) and my younger sister had a few years left of high school.
The bills certainly didn’t slow down just because Dad couldn’t work and while Mum had a job, she wasn’t a high income earner and had to take a lot of time off to care for dad.
Not everyone is fortunate enough to be able to rely on accumulated sick leave when things take a turn for the worse.
How would your family cope financially if you suffered an unexpected illness or injury and couldn’t work for an extended period?
How long could you continue to cover the mortgage, car payments, groceries, electricity bills, school fees, child care costs, medical bills and insurance premiums before your savings ran out?
Even if you could muddle through in the short term, what impact would an extended period out of the workforce have on your future? A 48-year-old earning $100,000 a year could reasonably expect to work another 12 to 15 years, and earn $1.2-$1.5 million over that period. For a 38-year-old, that figure could be more than $2.5 million – without even adjusting for inflation!
Your health and your ability to earn an income are two of you most important assets. But while most of us wouldn’t leave the driveway without having the car insured, income protection (or salary continuance insurance) isn’t always given the priority it deserves.
Income protection pays you 75 per cent of your ongoing salary if you can’t work due to illness or injury. So if you are earning $100,000 a year, you’d receive around $6,250 a month until you return to work or the policy ends. This is called the benefit period.
Most income protection policies will let you choose the length of this period. This usually ranges from two years to five years, or in some cases, up until the age of 70, which would guarantee you a regular salary right through until retirement even if you could never work again.
Income protection policies also have a waiting period, which is the time between when you become unable to work and when you become eligible to start receiving benefits. A standard waiting period is 30 days, however some policies allow you to extend the waiting period from 90 days out to six months or even a year. This would be useful if you had accumulated leave or savings and investments to fall back on before you needed to access the insurance payments. The longer the waiting period, the more cost-effective the premium.
Policy features and benefits can vary greatly between insurers, so it’s important to get advice to ensure you find one that meets your personal needs and circumstances.
My parents are both happily retired now, but it’s hard not to think how differently things may have turned out if they didn’t have a regular income to get them through an extremely difficult period.
It doesn’t take much to ensure you don’t leave the financial security of your family to chance.
Have a chat with your financial adviser today to make sure your family’s future is protected.
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