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Many professionals are failing to protect their biggest asset; themselves

Post Date:04/02/2010 | Author: Jim Fairhall-Dickie


With years of education behind them, and years of earning potential in front of them, professionals are a valuable commodity. But why are so few protecting themselves with insurance?
You’ve worked to give yourself a good income. And your income is going to play a big role in your lifestyle, and that of your family, for a long time to come.
It sounds like something you’d want to protect, right? But underinsurance is an issue facing an alarming number of Australians, from all walks of life – including professionals.
The insurance we’re talking about is life insurance – the most common forms of which are death cover, total and permanent disability (TPD), trauma insurance and income protection.
Life insurance isn’t just about protecting your family financially if you die. It’s about protecting your lifestyle if you get sick or injured. So if you can’t work for a while, or ever again, you’ve got a financial back-up plan.
Think of all the cases of physical and financial hardship you’ve seen in your profession. Then imagine it was your family that had to go through it all without financial support.

Insurance for business owners
Many professionals are self-employed, adding another layer of financial responsibility to the equation.
But despite their significant insurance needs, many small business owners are also failing to protect themselves and their families with adequate insurance.
According to a 2006 survey by the Investment and Financial Services Association (IFSA), less than half of small business owners feel they have adequate cover[1].
So if they know they’re not properly covered, why aren’t they doing something about it?
One of the reasons is that there's a perception insurance is too expensive.
But think about the sort of money you’d lose if you couldn’t work for a few months. Or worse, if you could never work again. It certainly helps put the cost of insurance into perspective.
It could even reduce your tax bill
Income protection insurance is one of the most relevant types of cover for professionals – including the self-employed. It can replace up to 75% of your income if you can’t work because of sickness or injury.
In the IFSA survey, 95% of small business owners said they were aware of what income protection was, but 56% thought it was too expensive.
So cost is obviously a big reason for the lack of protection.
But the fact 47% of respondents did not know that income protection premiums were tax-deductible shows there’s a lack of understanding around how much insurance actually costs.
Business expenses insurance – which covers fixed business expenses like rent, electricity and non-income producing staff wages if you can’t work because of sickness or injury – is also tax-deductible.
So if you run a business, you can combine these two types of policies to cover your work and personal expenses. And potentially reduce your tax bill.
How much does it actually cost?
Let’s take the example of a 37-year old male lawyer who earns $150,000 pa. He takes out:
§         an income protection policy to cover 75% of his income (or $9,375 per month), and
§         a life insurance policy of $1,000,000 to cover his mortgage and other debts.
His total premium before tax is $2,808. But because his income protection premiums are tax-deductible, his after-tax premium to $1,904. At about $40 per week, that’s the equivalent of a take-away pizza and a six-pack of beer each week.

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