By: Surety Life On: November 07, 2016 In: Insurance Comments: 0

Over the years, I’ve asked the question, “What’s your most important asset? Responses vary from my family, my house, investment properties, the business, my wife, my kids, my eyes, my hands, my relationship skills and may other varied responses. A very small percentage would say something like, my ability to work and generate an income, do my job or run my business. We often forget that if we don’t have the ability to work, then the income can stop.

What’s happens if I can’t earn an income?

How much income do your make? If you could not work for any reason would this income stop?

What borrowings do you have? Did the bank ask for income proof? Do you know why the bank asked for income proof? Have you signed documents with your bank guaranteeing that you can and will pay the money back?

Why did you borrow money? If it was for an asset, e.g. property then you would expect that the price that you paid for this will become inflated, they become more expensive to acquire over the years. If it was for something else maybe the price will become deflated? E.g. a car.

How much tax do you pay? What tax will you be liable for? We know that when we sell assets there is usually some tax payable? Like an investment property, shares or a business.

You may have heard a simple definition?

An asset puts money in your pocket and a liability takes money out of your pocket. Would you agree that your house and mortgage is a liability? Whilst we all love our homes, it’s probably our biggest financial liability till we manage to pay this off. The banks love us for this as it’s one of their biggest assets. The interest you pay the bank is the income they make. If you can’t make the interest cost for a prolonged period for any reason then you will most probably have to sell. In Australia if there is a shortfall you will have to make good the difference.

“20% of mortgage defaults are due to an illness or accident in the household” Source: Mortgage default in Australia: nature, causes and social and economic impacts, Australian Housing and urban Research Institute, March 2010.”

Why income protection?

It seems that most people will have their car and houses insured but very few people have adequately insured their incomes. Would you be upset with your employer if you had zero sick leave days at work? If you called in sick you don’t get paid? Or from another angle let’s say that you had a golden goose at home. You had this locked up and secure because every day it laid you a golden egg which paid for all the things that you owned.

If you could insure this goose for a reasonable sum of money just in case it gets eaten by the cat or gets some mysterious illness and you lost your income. Would you do it? Would you do it if you knew that you could insure the lifetime of income that would be lost? Income protection insurance protects your most important asset. Your ability to lay that golden egg. It would definitely be smart to have income protection insurance.

The above information in not intended as advice, if you require advice please contact Surety Life.