Protect Your Income



Consider that you are 35 years old and earn the average Australian salary of $81,947. So, between now and when you retire at age 65 you will earn $2,458,410.00. You, my friend, have just come within reach of the elusive Ferrari F60 America model. What you choose to do with that income/car is up to you, but keep in mind that is a lot of responsibility on the roads! And boy would you be mad if it got a scratch.

As a financial adviser, there are several common questions I get asked on a regular basis with a popular one being: Should I invest in an income protection policy?

Seriously, would you consider driving your brand-new Ferrari F60 America purchased for $2,500,000 without car insurance?!

I would think not!

As much as the future of that car may seem in your control, there are always external factors which cannot be predicted. Someone speeding a red light, someone reversing without looking, a lack of indication around a roundabout. Some things you just can’t control, they are called accidents.

You Are The Income Vehicle

So where do you fit in as the red Ferrari? Well, you are the vehicle that provides income for not only yourself, but more than likely your loved ones as well.

Just like your new, beloved Ferrari you are worth an awful lot to the lives of your loved ones.

This almost certainly brings us to a head. I’m quite certain that you’ve heard of income protection, but do you know exactly what it is?

Broadly speaking, income protection is an insurance policy, paying benefits to policyholders who are incapacitated and hence unable to work due to illness or accident. This is no new idea for only the conservative Volvo drivers of the world. The first known income protection policy dates to 1880 in Gloucester.

Unfortunately life is fraught with danger but we constantly hear clients say to us that it will never happen to me and I don’t need it.

Think of yourself as this new Ferrari and you have an accident, you’re stuck in the car repair shop (hospital) you can’t work, you can’t earn any money and the bills are piling up.

Scenario 1:

The mortgage is due, the insurance on the Ferrari is overdue and you have an insurance excess to pay, simply adding to your woes. Life has tipped off the point of glory where the red Ferrari was once perched.

Right about now, you wish you had invested in the income protection rather than a dented up red Ferrari. The income protection benefits will wipe away the tears and your life will do a complete U-Turn with you heading in the right direction.

Scenario 2:

Fortunately, you listened to your financial adviser and took out an income protection policy. You are now being paid until you are medically fit to return to work. Whilst you are being sufficiently repaired, rested, and taken care of until you are ready to get back on the road again, income protection insurance is taking care of all of your bills.

Unlike your car insurance, if you continue to pay your income protection premiums or you make a claim, the policy won’t be cancelled because of your accident. They can’t suddenly jack up the premiums either if you’ve been on claim.

You take your Ferrari to the dealership and have it serviced and maintained. So too you should commit to regular maintenance via review meetings with your Financial Adviser.

There’s been lots of changes to the first Ferrari produced in 1947 and lots of changes to the first known income protection policy issued in 1880. These changes mean that your Financial Adviser has a big job to do! They must stay update to date with policy and legislation changes, ensuring your policy remains the most suitable to your individual circumstances.

As your career progresses and your lifestyle improves, it should be a priority to meet with your financial adviser to protect that lifestyle via your income (that red hot Ferrari).

A funny thing to see would be the reaction of your accountant as you try to claim Ferrari expenses on your income tax return. That would be priceless. In most circumstances, the premiums for Income Protection are tax deductible and your accountant will be happy to claim them on your behalf.

On a more serious note, if you do ever put an actual Ferrari in your garage please remember that it should only be RED, so please don’t ever consider changing colours or changing to a Lamborghini…

Every person is different so your financial adviser will tailor a policy that best suits your needs and financial situation. However, a word of advice, Advisers don’t tend to be mechanically minded so don’t ever let him near your actual Ferrari!

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