Protecting your income is essential if you’re self employed or run your business through a company or trust.
My question to you is, do you have Income Protection insurance?
💰 What are the benefits of protecting your income?
By using the strategy of protecting your income you could:
- Receive up to 75% of your pre-tax income if you are unable to work due to illness or injury, and
- Ensure that business resources do not have to be used to fund you while you are unable to contribute to the business due to illness or injury.
💰 How does the protecting your income strategy work?
If you are unable to work for an extended period due to illness or injury, how will you meet your mortgage repayments and other bills and expenses? Without a strategy for protecting your income, you could run down your savings very quickly and face financial difficulty.
Rather than putting your family’s lifestyle at risk, by taking out Income Protection insurance, you could receive a monthly benefit of up to 75% of your income to replace your lost earnings while you recover.
During this period, income protection insurance could ensure that business resources do not have to be used to fund your income while you are not contributing to the business.
What is your future earning capacity?
If you’re in any doubt about the importance of protecting your income, the table below shows how much you could earn by the time you reach age 65.
For example, If you are currently 35 and earn $80,000 pa, you could earn around $3.8 million before you turn 65. Isn’t that worth protecting in the event that you are unable to work due to illness or injury?
How much will you earn by Age 65?
| Current Income (pa) | Age Now | |||
|---|---|---|---|---|
| 25 | 35 | 45 | 55 | |
| 40,000 | $3,020,000 | $1,900,000 | $1,070,000 | $460,000 |
| 60,000 | $4,520,000 | $2,850,000 | $1,610,000 | $690,000 |
| 80,000 | $6,030,000 | $3,810,000 | $2,150,000 | $920,000 |
| 100,000 | $7,54,0000 | $4,760,000 | $2,690,000 | $1,150,000 |
Assumptions: Income increases by 3% pa. No employment breaks. Figures rounded to nearest $10,000.
💰 When taking out insurances, you should consider paying level rather than stepped premiums.
What are the benefits?
By using this strategy, you could potentially:
- pay a lower average premium over the life of the policy, and
- make your cover more affordable at a time when you need it most.
How does the strategy work?
When you take out insurance within or outside super, there are generally two ways you can pay your premiums. Go here to find out more.
💪 Protecting your Assets is also a form of protecting your income.
If you’ve used debt to start-up or grow your business, you should ensure you and other key people have suitable insurance cover.
What are the benefits?
If something happens to you or another key person and the insurance provider pays the claim, the insurance payment could be used to;
- Reduce or repay debts
- Protect any personal or business assets used as loan security.
⚠️ What happens if you don’t have this type of protection?
Your business could therefore have difficulty meeting loan commitments. The lender could also have concerns regarding the business’s cashflow and credit position and may require the outstanding loan to be repaid immediately.
You may even have to sell the personal or business assets used as security so the debts can be cleared.
👀 You can read more on protecting your assets here
If you need more information or help to implement protecting your income and assets strategy for your wealth protection, contact us today on 08 7111 0022 or book a chat here
Arthur Panagis
Author, Founder, Wealth Coach and Financial Strategist
B.Bus (Accountant)
Grad Dip (Financial Planning)
Professional Certificate in Self Managed Super Funds
ASX Listed Equities Accreditation
Tax (financial) Advisor
REMEMBER, action is power!
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Disclaimer: This article is factual information only. It is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. The information in the article is reliable at the time of distribution, but may not be complete or accurate in the future.
