When planning finances and how to achieve financial independence, one of the biggest mistakes Australians make is assuming that they will have a healthy income over the course of their working life. But life is unpredictable, so what happens when injury or illness gets in the way? If you aren’t prepared, all your financial plans will go out the window.
What is your greatest financial asset?
As a financial planner, I often ask people about their greatest financial assets, to which they answer: Home, car, superannuation. Very few consider their income and their ability to earn it as an asset- let alone their biggest one. So why do we readily insure our house and car, but not our life or income?
Are you adequately insured?
If you lost your income, what would be at risk? Your home? Your children’s education? Your family’s lifestyle? Your retirement plans? The impacts of income loss can last well into the future. According to research from Rice Warner, 16 million Australians are underinsured. The report claims that less than half (42%) of Australians have enough Life Cover to provide the same standard of living for their families if they were to pass away.
What are the most common pitfalls with insurance?
Most insurance mistakes come from one misperception – ‘it won’t happen to me’ – but when it does happen, loss of income can be devastating. Avoiding these pitfalls could be make or break for your future.
- Relying on inadequate superannuation cover. Many people assume that their income is adequately protected in their superannuation policy. But unfortunately for most of us, the default cover included in our superannuation is minimal.
- Insufficient level of cover. Unfortunately, when people experience trauma and don’t have adequate insurance, the financial burden can be significant. You may be forced to live on one or no income at a time when expenses are escalating quickly. It is important to set-up the right level of insurance for your circumstances and continue to review and adjust to keep the cover relevant to your changing needs.
- Assuming workplace insurance is enough. The truth is, very few claims for income protection come from workplace injuries, more than two-thirds of income protection is based on illness.
- Relying on government assistance. Government entitlements are very limited and low. A lot of people assume that all medications and treatments for serious illnesses are funded by the government, but this is not always the case. Medications for some types of cancer, particularly if they are new to market or the cancer is rare, may not be covered by the Pharmaceutical Benefits Scheme and can come to thousands of dollars each month. Finding yourself or your loved one in a situation where treatment isn’t financially viable would be unthinkable.
Nothing can ease the devastation caused by accident or illness but having a partnership with a good financial planner who is looking out for you can greatly ease the financial and administrative burden at a time when you need to focus your energies and time elsewhere.
The impacts of income loss can last well into the future. The right cover is more than a safety net – it’s an investment in your future and your family.
General Advice warning
The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.
