There are many ways to build wealth, but what about protecting it?
I’m often struck by how strongly Australians focus on the wealth-building side of their goals: they seek mortgages to buy property, they start businesses and they know that regular contributions to superannuation is a good idea for their retirement. But look closer at these wealth-building ideas: they all require you to contribute to them with your hard earned cash for success.
However it is actually you and your ability to generate an income which builds wealth. So what would happen if that capacity was taken away or reduced?
The way to protect income-generation is through Life Insurance. There are several different types of cover available with some protecting you and some replacing your earning capacity, so every Australian should investigate which cover type is right for their individual circumstances. The people who need life insurance are those with debt (of any type, but most commonly home loans), assets (do you own a property, or a business?) and/or have a family.
The most common type of cover is ‘Life Insurance’ which pays a nominated benefit to your next of kin should you die. Clients with mortgages take out these policies so that they can leave behind debt free assets (like the family home) to their family. Sometimes the insured leaves behind a business and an insurance pay-out can keep the business going until it can be sold or wound up.
Another insurance cover type which protects your ability to generate cash is Income Protection. This type of policy provides a monthly income benefit should you be unable to work due to accident or illness. The cost of Income Protection is tax deductible in many cases, so ask your financial adviser about this for your situation.
Trauma Insurance covers you in the event of illness such as cancer, stroke or heart attack as a tax free lump sum payment. These funds can be used for anything, but claimants often use these funds to cover expenses like medical bills or pay their mortgage whilst they take time off to seek treatment and recover.
Total Permanent Disability insurance (TPD) ensures that in the event of a debilitating event (this means that you are deemed totally and permanently disabled and unable to ever return to work) that the insured has funds to cover their future earning potential to be able to sustain the household.
A major insurer surveyed Australians a couple of years ago, and found that most people with life insurance only have it through their superannuation, and one third of those with life insurance don’t have insufficient cover to pay-off the mortgage. How much cover have you got?
Just having the insurance is good, but it isn’t enough on its own; the crucial part is assessing to make sure you have the right policy, with sufficient cover, providing income in the right circumstances.
This is one area where it’s worth seeing an expert Financial Adviser or Insurance Broker. Getting advice is crucial if you’re self-employed or a business owner.
Always remember that your ability to generate income is actually your greatest asset, and it’s worth protecting.
*This information is general in nature and does not take into consideration your individual circumstances. Please contact us for further information.