Friday, 13 Dec 2019

Factors to take into account if you are considering income protection insurance and you’re under 35

You’re young. You’re fit and healthy. Your career is starting to hit its straps. Chances are you haven’t started a family yet. You’re earning good money – good enough money to buy a nice, brand new car. You’ve taken out comprehensive insurance on the car because it’s the largest asset you have – or so you think.

But it’s not. Your largest asset, by far, is your income. The car started to depreciate the moment you drove it out of the showroom. The reality is that if your 35 or under, on an “average” professional income of $80,000 growing at around 3% per annum, then your earnings by the time your 65 will have been at least $5 million – assuming nothing bad happens to you that prevents you from earning. The reality is that your earnings will probably be more – you will get promotions or change jobs and your future potential earnings will possibly be significantly more than that.

However, things happen even to young, fit healthy people. And if you find yourself in a position where you can’t work, even for a short period of time, then having to get rid of the nice new car is probably the least of your issues – just dealing with day to day expenses will eat into your potential retirement earnings and may find you struggling to get by from week to week.

Income protection insurance is a clever financial strategy, no matter what working age you are. If you are considering it, then here are some things you might want to think about:

  1. You’re young, so it’s cheaper: the younger you are when you look at taking out income protection insurance, the cheaper it will be. It’s basic maths – you are less of a risk to the in But if the risk becomes a reality, you’ll still be protected.
  2. It’s a safety net: if something bad happened, are you confident that you’ve got the savings behind you to take care of essential expenses for more than a week, a month, a few months? Would you want to be surviving off the charity of family and friends?
  3. If you run a small business you are more exposed: young people running a small business probably view income protection insurance as an unnecessary luxury. But you’ve probably invested everything in the business and if something went wrong you could lose it all.
  4. It’s tax deductible: income protection insurance is almost always tax deductible, so the net impact on you financially is negligible for a simple peace of mind.

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