It’s undoubtedly one of the most common oversights that I come across as my role as an accountant - people’s failure to adequately insure their most valuable asset...themselves! The first thing that people do when the buy a home, a car, a pet or a boat is to insure it against theft or damage; things when put into context are material objects (except pets) whose worth, when compared against what your future earnings are as an individual, are generally insignificant.

There are two key elements when discussing the issue of personal insurance. The first, as an individual you need to put a future value on your earnings and calculate what that looks like to comprehend the enormous financial impact it would have if you did not have the ability to earn your wage or run your business. Take a quick example, a 25-year-old who works until 70 has a 45 year working life, at an average wage of $100,000 over their lifetime - that’s an asset equivalent to $4.5 million dollars. This asset is not only essential to pay for cost of living throughout your lifetime but it also forms the foundation for you to invest and accumulate wealth outside of this future income stream. Hence the recommendation for people to have income protection insurance. Losing your ability to earn income, possibly for life but even for months or a couple years can put huge pressure on your ability to live at the same standard you have become accustomed too, let alone paying your rent or a mortgage.

The second element of personal insurance is the impact that failing to be adequately insured has on loved ones and family. This opens the discussion for not just income protection insurance but for life insurance and critical illness insurance. An example I often give with regard to this second element is that when you see fundraising events for families who have lost loved ones or have become ill, calling on the public’s benevolence. This need could have been avoided had the individual had adequate life insurance and/or critical insurance cover. Adequate insurance cover not only financially protects your family and dependants but eases the emotional stress of having to deal with life in your absence or when helping you through illness. Leaving your loved ones with life insurance proceeds could help payout your mortgage, fund kids schooling and generally give financial piece of mind in a time that they would be hurting and feel vulnerable.

Like most things in life you pay for what you get, and with the cost of living in Australia putting pressure on family budgets, I understand that it is tempting for people to under insure or not take these insurances out at all. But I would urge people to think differently and prioritise personal insurance above some discretionary expenses that they are incurring.

Tips and traps for personal insurance:

• get quotes from different insurers and consider using an insurance broker that specialises in personal insurances. Not only will they tailor a policy to your needs and budget, they will assist when it comes time to make a claim
• check what insurance you already have within your superannuation. Many people have personal insurance cover unknowingly inside their superannuation. The insured amount is quite often inadequate but it’s a good starting point and you can arrange for the amounts to be increased
• if you take out insurance and pay through your superannuation be very careful as this will over time erode your superannuation balance and cost your retirement savings hugely. If you decide to pay your insurance through your super, salary sacrifice or make additional after-tax contributions into superannuation to cover the cost of the insurance
• make sure the beneficiary of your life insurance (Binding Death Nomination) is always updated to reflect changes as to who you want to receive your life insurance
• income protection insurance is generally tax deductible so make sure you claim these payments on your tax return
• make sure your insurance is noted and addressed in your will and estate planning
• be mindful that the cost of your personal insurance will be much lower in your 20’s and 30’s than it will be in your 50’s and 60’s so discuss with your broker in order to make it affordable later in life so you are able to continually afford the payments 

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters. 

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