Callaghans, Create the Future
Published June 30, 2021

How long do you think you could survive on a zero income before needing to sell your assets?

Are our priorities right?

A survey undertaken by Lifewise found that 83% of Australian car owners insure their cars. However, only 31% of Australians insure their income. These statistics are quite alarming considering that 20% of mortgage defaults are due to ‘illness or accident in household’. When considering what is more valuable you need to consider the following questions:

When looking at the above example, a car is valued at $45,000 when purchased. The value of the car will decrease over a 5-year period. If you compare this with your income, the value of your income over 5 years will be much greater than the value of your car after purchase. The cost to insure your income is approximately 2% of your income before tax, this figure will vary and is based on an individual’s factors such as age, occupation and benefits chosen. If your income is too valuable to live without, then you can’t afford not to have Income Protection.

How much do you rely on your income?

Assuming you were unable to work because of illness or injury, how long do you think you could survive on a zero income before needing to sell your assets?

Below is a screenshot of the results Zurich received when they asked this question in a 2014 survey:

Majority of people surveyed responded that they would survive less than 1 month before having to sell their assets, with 38% choosing this option. For individuals aged below 35 years old, a massive 50% answered that they would survive less than a month. There are different factors that affect an individual’s ability to survive should they be unable to work for a period of time. Age is a major factor; older people may have access to superannuation or may receive pension payments and therefore won’t feel as much pressure or stress should their income stop. Compared to young families who may have a mortgage and other financial commitments.

What are the odds?

A common attitude is that ‘it won’t happen to me’. When looking at the below statistics, it highlights the importance of insuring yourself against these accidents and potential circumstances that you may require income protection. Accidents and illness can happen to anyone and it’s important to put the right insurances in place to protect yourself and your family should you find yourself in an unfortunate position.

It can – and does – happen to anyone at any age: illness and injury

The image below is an exact screenshot from Zurich’s income protection claims register. As you can see the different factors shown; age, gender, cause and occupation, all vary and there is no predominant result showing any patterns or trends. This demonstrates the uncertainty of this happening to you and supports the importance of putting insurance into place to protect yourself and family.

Will government assistance really assist?

Workers’ Compensation

Workers’ compensation – e.g. WorkCover – will only cover you for accidents or injuries that occur during working hours or for an illness that is a direct result of your employment (if you are self employed you may not even have workers’ compensation cover).

Even if your illness or injury is covered by workers’ compensation, benefits are capped under the different state regulations, in terms of both the amount of weekly benefit and the length of time they are payable for. For many people, the benefits payable under workers’ compensation will be well short of their normal weekly income. This can find you in a very difficult and uncomfortable situation.

Are you adequately protected? Things to consider

Many industry super funds offer a minimum level of default cover for its customers through their superannuation fund. The default benefits are generally driven by simple formulas based on your age and salary. Default cover is not tailored to your circumstances and does not take into consideration any specific factors specific to you. There is often a gap between the required cover needed and the default cover given.

Myths and objections to life insurance – common misconceptions

I can’t afford it - Myth

If every cent of your income is precious, then you can’t really afford not to have it. Plus life insurance is probably cheaper than you thinks, with the equivalent of $10 per week able to buy approximately $750,000 in death cover for a 35 year old non-smoking male (based on sample quotes from a range of insurers).

If something happens to me, my debt is extinguished - Myth   

Unless you are specifically paying for some type of credit insurance this is almost never the case. The lender will either demand your guarantor or family members keep up the payments or seize the assets (car, home, business).

I need a medical - Myth

As part of the application you will need to answer questions about your health, occupation and lifestyle, but in most cases an insurer can process your application without needing to ask for extra.

Occasionally, depending on your health or the type or amount of cover applied for, you may be asked for extra information. This may involve a more detailed questionnaire or – in some cases – tests such as blood tests, or a medical examination (by your own doctor).

The costs for any such tests – in the event they are required – are fully met by the insurer so you are not left out of pocket.

I feel awkward discussing my health issues in front of people

Many life insurers now offer telephone based underwriting services, where they can call you at a pre-arranged time and gather the required information over the phone.

Have a question about your Insurance cover?