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I spent four months in and out of hospital thanking my old boss for this advice


It’s nearly June, but Jessica Brady feels like she’s only just starting 2024 after a bout of what she thought was food poisoning turned out to be much more sinister. She had a gallbladder condition which deteriorated into severe sepsis and ultimately required surgery. After months in and out of hospital, she’s grateful for two things: she has her health again; and she had insurance. As a financial adviser and founder of The Greenhouse, a financial literacy platform, Brady, 36, knows better than most how reluctant people are to think about health and life insurance.

“The idea that I wouldn’t have been able to pay my mortgage or have to sell was horrible,” she says.

“No one wants to be making a big financial decision from a place of fatigue or pain or stress, so to be able to completely eradicate that as a thought was a huge relief. While she was unwell, Brady thought a lot about the advice she received as a 21-year-old working in insurance.

“I did it begrudgingly. I was saving to go for a holiday, and I said to my boss, ‘I’ll just do it when I get back from my holiday’, and she said, ‘absolutely not, you will do it now because what happens if you get sick or injured on this holiday? You need to be covered’.”

Now, Brady has two goals. The first is to listen to her body more, and the second is to make sure young people are prepared for the worst. Car and home insurance are familiar items on the to-do list, but few young people think about insuring their most valuable asset: their income.

“Your ability to earn is the foundation of your lifestyle and upon which all your financial plans are built,” says Wealth Investors director Chris Youssef.

“Without it, everything from paying off debt to saving for a home or supporting your family, could be at risk.”

Three types of insurance to know about

Income protection insurance pays out if you are unable to work for a short period, and it generally covers up to 70 per cent of your regular income. As a general rule, basic income protection shouldn’t cost more than between 1 and 1.5 per cent of your salary, says Billy Amiridis of 360 Financial Strategists, an AMP-aligned practice. In 2022, $11.2 billion was paid out in life insurance claims to 85,000 Australians, including $3.7 billion in income protection, according to the Council of Australian Life Insurers. That was more than death cover ($2.9 billion) and TPD ($3.2 billion) and other types of cover including trauma ($1.4 billion). Brady had both income protection insurance and trauma cover, and is in the process of making a partial disability claim through her income protection insurance.

“Trauma insurance provides cover if you are diagnosed with an advanced cancer or have a major heart attack or stroke, for example,” says MetLife chief insurance officer Meray El-Khoury.

“You might not have a total permanent disablement, but you might go through a period where you have very high medical costs.”

While income protection will provide an ongoing income stream, trauma cover is paid out as a lump sum.

Total permanent disability cover is a separate product that pays out a lump sum if you become totally and permanently disabled and are unable, or it’s extremely difficult, to return to work.

You can pay for income protection insurance through your superannuation, which means there’s no direct hit to cash flow, and if you buy it outside super, the premiums are tax-deductible. Trauma cover is not tax-deductible. The trick, however, is making sure that you’re getting the right cover for your needs, advisers agree. Put simply, TPD will only pay out if you’ve experienced a significant and life-changing event that means you are unlikely to ever be able to return to your line of work, or work in general – depending on the cover.

Income protection insurance, on the other hand, provides a regular income stream; for example, if someone were recovering from an injury. Remember, it won’t pay out if you’ve simply lost your job – claims will only be satisfied if there is a medical reason why you cannot work.

Trauma cover is slightly different again, in that it pays out a lump sum that can help in the event you’ve been diagnosed with an illness or injury and need immediate financial support, but are also likely to return to work. It is paid out regardless of whether you can continue to work while you undergo treatment.

How do I figure out what I need?

Youssef says the first step to figuring out how much income protection insurance you need is to dissect your finances. “Understand what you need to maintain your lifestyle in the event you can’t work. This includes regular bills, mortgage repayments, groceries, and other necessities,” he says. Next, take a good look at what benefits your employer already provides, and what you might have sitting in sick, annual and long-service leave. It’s worth noting that some insurers will require you to drain some of those balances before you can claim income protection insurance. After that, look at your cash buffer to get an idea of how long you would be able to survive if your income was cut. Also consider your partner’s employment and income and your other insurances, which may cover some of your needs.

“Remember, after going through the above, you might find out you’re self- insured, and it’s not required – but going through the process will help determine if you’re one of the lucky ones,” says Youssef.

Then, check whether you already have cover through your super. According to analysis by Super Consumers Australia of government data, 60 per cent of MySuper products automatically provide income protection. But even so, it may not be sufficient.

“An inordinate number of people have a lot less, or poorer quality insurance, than what they believe inside of super,” says Matt Hale, of Rising Tide.

To check if you have insurance in super, Hale says to ring your fund and ask them to send you a certificate of currency of the insurance cover you’ve got.

“A lot of people might be unpleasantly surprised because they’ve got none,” he says.

Your super statement or app may also give you an idea of what cover you have.

Three things to check

There are a couple of important things to check.
  • The first is the amount you’re covered for, Amiridis says. If you earn $100,000, but your policy only covers $50,000, in the event you were to claim, that’s a problem.
  • The second is the waiting period before you can claim. “If you’ve got resources like sick leave or annual leave, you can consider reducing the costs of your insurance by extending the no-claim period,” he says.
  • Third – and this is a big one – is the benefit period
Amiridis says ideally, for income protection, you want to be able to claim on the product until you’re 65 and can then access your super. “Sometimes with these policies that you get through your super, you might have income protection, but you’re only covered for two years or five years.

“The worst part is, imagine if something significant happened, and then all of a sudden, you think you’re covered, and then at that two-year mark, the income stops. If you can never go back to work, what do you do?”

Bear in mind, though, that just as extending the no-claim period will reduce premiums, extending cover to the age of 65 will result in higher premiums. “There is no perfect number, as the variables become too varied,” says Hale.

“Debt levels, income levels, risk tolerance, and your age, health and smoker status [will all affect it].”

Brady notes it’s not uncommon for a young person – who doesn’t have a mortgage, family or significant liabilities – to be over-insured for life insurance, but completely under-insured for income protection. She generally recommends that people get standalone insurance to ensure they are not faced with the sweeping exclusions that are often a feature of default insurance within super.

Hale says coverage will really depend on the questions that are asked in the application documents. The more questions you answer, the better the policy will be. “Otherwise, you will never have certainty around what you can claim on. Medical files are often reviewed at claim time for cover that people don’t go through a rigorous process to put in place.”

There’s a “beautiful irony” in the fact that while getting your insurances sorted while you’re young means cover is generally cheaper – and you can lock in more favourable terms, as you haven’t developed any health issues – this is also the time when people are the least likely to see value in financial advice, says Brady. This is, however, also the period in which you’re the least likely to see the value, or be able to afford personal financial advice. While Amiridis believes it’s still worth it, and rationalises the annual cost of a $3500 financial advice plan as less than two coffees a day, Brady says there are places to get help without needing personal advice. Brady’s The Greenhouse offers general advice, in the form of a series of modules and check-in calls that participants complete. The final module focuses specifically on insurance. After that, if people would like some help implementing the insurance, she refers them to insurance specialists, who generally don’t charge out-of-pocket fees, including Skye Wealth, Orbital Life, and AFRM. The other option, says Hale, is to call a financial advice firm or two. Even if they don’t have the capacity to put you on the books, or your overall finances don’t warrant complete financial advice, they’ll usually have some general advice providers they can link you to. Another possibility is to call your super fund.

Income protection insurance

  • What: Pays out if sickness or injury prevents you from working. It does not cover you if you are made redundant or quit.
  • Payment type: Monthly income stream
  • Average payout: Up to 70 per cent of your income

Trauma cover

  • What: Pays for medical or other costs associated with critical illness or serious injury. You can claim trauma cover even if you can still work.
  • Payment type: Lump sum
  • Average payout: Between $100,000 and $500,000

Total and permanent disability

  • What: Pays out if sickness or injury prevents you from returning to work. Depending on the cover, you can claim if you are unable to work in your current occupation, while other policies will only pay if you are unable to work at all.
  • Payment type: Lump sum
  • Average payout: From $30,000 to millions of dollars
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