Most people have some form of income protection insurance within their super.
But is it enough? And will it cover you in all circumstances? Have you ever looked at the fine print? If you’re running your own business and suddenly can’t work – even for a short period of time – are you sure that you will be covered financially?
In the next of the ATB Partners series on insurance, Paul Rattray explains why you really need to protect your income with insurance.
“Insurance is like tax,” says Paul Rattray of ATB Partners. “People acknowledge it exists, but they don’t really like to talk about it… And so, most people think they’re covered. And they only find out that they’re not as well covered as they thought they were, when something goes wrong.”
Recently, in an article on mortgage stress, the ABC recounted the stories of several Australians struggling financially and not able to meet their mortgage repayments.
One of the story participants is in a position where he must now sell the family home because he’s under such financial duress. And while the article did not talk about insurance, reading between the lines, it’s understood that when this poor fellow faced a barrage of health issues and could no longer work – running his own business – the debts started to pile up.
These debts got bundled into the mortgage, which just kept getting bigger and more difficult to manage. It’s a heartbreaking read.
And this is exactly why you need adequate insurance: The kind of insurance that won’t just cover the health bills, but insurance that will provide you with an income when you can’t work, and ensure that at the very least, you can keep the mortgage paid, the lights on, food on the table and the family taken care of. Perhaps your insurance payout might even afford you a staff member, even if only part-time, to cover the critical aspects of what you do so your business can keep ticking over until you’re well enough to get back to it.
“Insurance buys you time, and it gives you the resources to make well-thought-out decisions. Insurance means you don’t have to panic,” says Paul.
“To be honest, without proper insurance, things get really stressful. I’ve seen it happen myself. And the thing is, if you’re dealing with a major health crisis, that’s enough to worry about. You shouldn’t have the added pressure of finances, when all that matters is getting back on your feet and back into life.”
And this is a valid point. Chronic stress is disastrous for the body. So, if you’ve had a health crisis or an accident, stress is not going to aid recovery.
“It’s hard to understand why Australians are so great at insuring their ‘stuff’ – the house, the car, the boat, the caravan… but so lackadaisical when it comes to insuring the income stream that actually provides all that stuff. And it’s not just about the toys. It’s about putting food on the table, paying the school fees, making sure that the bills are paid.”
The critical point about insurance that most Australians don’t seem to understand is that the ‘generic policies’ (such as those within your super) don’t always account for people’s particular circumstances, or their lifestyles.
“As a small business owner, it’s critical to manage risk,” says Paul. “And while many owners diligently consider risks in the external environment, the market competition, those brought on by new technologies or losing key clients or members of the team, few think about what would happen if they suddenly couldn’t work. And not just what would happen to the business, but what would happen to the family that is supported by the business?
Income protection insurance is something that I’m really passionate about,” says Paul.
“Because it’s important to get the right policy – the one that’s tailored to you. And sure, it might cost a bit more, but you’re not going to quibble over a few hundred dollars in extra premiums if you know that it’s going to adequately cover what you need. In many cases, income protection insurance can be a tax deduction, so it’s definitely worth getting some professional advice.”