We Australians are a pretty optimistic bunch, however there’s a big difference though between having a relaxed outlook on life and leaving the important things to chance. It turns out plenty of us take the latter approach, with 38 per cent of Australians believing they would not be able to survive financially for more than a month before needing to sell assets if they became sick or injured and were unable to earn an income[i].
Your ability to earn a steady income is by far your most valuable asset, however a common mistake many make is thinking the ‘default’ coverage offered automatically through their superannuation fund will be enough to look after them and their families should the worst happen. This belief has caused a false sense of security, assuming that life insurance and income protection is a homogeneous ‘box they have already ticked’.
No substitute for peace of mind
Don’t rely on the common misconceptions that should anything happen to you, you will be protected by your default super cover, workers compensation, or even government-provided services like the NDIS or Centrelink. The truth is that for many people – even if you have this cover or are eligible for these so-called ‘safety nets’ (and many people aren’t) – the protection offered is minimal and not adequate to maintain your lifestyle or take care of your family.
What does default cover, cover?
If you are an employee, you may have some sort of default insurance cover that you were granted automatically upon joining the fund. Typically the cover amount is based on a simple formula and is not tailored to individual needs. Salary continuance benefits are also not guaranteed and by law, trauma insurance, which covers critical conditions like cancer, heart attacks and stroke, cannot be offered through a superannuation fund.
Only a professional financial adviser can advise on the appropriate type and amount of cover for your unique circumstances. They can also advise you on the ins and outs of funding your cover through superannuation.
How do I determine the level of Income Protection that’s right for me?
There are a few rules of thumb that you can use to get an idea of what your level of understanding and preparation should look like.
In terms of protecting your income, think about your weekly or monthly living expenses and how long you could survive if you were no long being paid.
- Do you have savings you can easily dip into?
- Do you have ongoing debts (mortgage and other loans) that will need to be covered?
- How long before you would need to sell assets or call upon friends or family for assistance?
This should help build a better alignment between risks prioritised and risks you may actually face, as well as provide peace of mind about the value for money you ultimately get from your insurance premiums.
Seeking professional help
Securing your future, and that of your family, is not something that should be taken lightly. With recent research showing that financial advice clients are better informed and better protected, it is clear that the biggest favour Australians can do for themselves and their loved ones is to consult a qualified financial adviser.