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Life insurance.  It’s still one of those topics that can divide a crowd.  Given how long this form of insurance has been around and there are millions of people who have benefited from it around the world, the question remains: Why are we still so underinsured?
Unfortunately, it’s that good ol’ human nature – a combination of the “It won’t happen to me”, “She’ll be right mate” type attitude – with a healthy dose of insurance overload from everywhere else.

Thinking about it, you’ve already got plenty of insurance, haven’t you?  Home insurance in case your house burns down (your home is your biggest asset after all?), contents insurance (in case you get robbed), car insurance (you cannot afford to buy your car twice now, can you?), health insurance (more like health tax, but that’s for another day), plus if you’re in business you probably have Worker Comp, Public Liability and even Professional indemnity and Directors and Officers insurance.

That’s not including your boat, motorbike or landlord’s cover for your rental property! Then of course, there is the option to get compensation for car or workplace accidents.

So surely there’s enough cover in there somewhere?  Unfortunately the real answer is no.  Perhaps it’s a case of prioritising and rationing, after all, we need to have some money left over for actually living!

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The problem with life insurance is that it covers the least tangible thing we have, our own human frailty and most of us aren’t keen to think about that, let alone admit this might be an issue.  Let’s consider it from a risk management point of view though.

Our priorities in life are generally to:

  1.      Get a good education, which allows us to
  2.      Get a good job, which leads us to
  3.      Get a good income, which allows us to
  4.      Buy a nice home, fund our lifestyle and ultimately
  5.      Build an asset base to retire so we no longer have to work for income.

Now the success of Lotto and other large payout gambling options suggest that most people would prefer to go straight to number 5. However, in the absence of this “luck” they spend their lives going through each step to reach their ultimate goal.

The problem is, however, that this all assumes that you can actually reach it. It assumes you have the physical health needed to get you there.  What if you don’t?

Why income protection? Despite increasing financial literacy, the myth persists that your home is your biggest asset because of its tangible value.  Nothing could be further from the truth, your home is by far your biggest liability (and I don’t mean debt), necessary, sure but, a liability none the less.  Your biggest, most important asset is always your ability to produce cashflow.  Through most of your life, that asset is you and eventually, over time, you’ll replace that with financial assets, i.e. with shares and property.  Whichever form your major cashflow assets take at whatever stage in life, make sure you protect them, they’re very hard to replicate again!

Many people mistakenly believe the value of income protection is to pay you an income if you cannot work.  If you’re unable to earn at full rate, IP kicks in to help cover the shortfall until you can.  Whilst this is true in definition, the real value of income protection is significantly greater.

Income Protection helps you get on with life, by getting you back to work.

I’ve been in the finance industry for over 15 years and didn’t realise this myself for most of that time.  As my experience with claimants increased over time however I began to realise the true value of income protection.

You see, when you speak to those who have had an IP claim, whether it’s for a few months or decades, the real value becomes a lot clearer.  Whilst they appreciate the money, the reality is these people want more than anything else, simply to get on with their lives.  IP provides the financial means to do this, even if it’s only for short-term, it prevents the financial momentum from heading backwards as assets are realised.  This ability to keep moving forward is essential not so much for financial health, but metal health as you recover from the injury or illness that caused the setback in the first place.

It turns out that, by not adding the mental strain to the physical, makes all the difference in how your life plays out and therefore how your family’s life plays out.

Income protection not only allows you to jump straight to 5 if you physically can’t get there yourself, it most importantly maximises your chance of getting there on your own.  Because it provides the ultimate resource – cashflow – it can ultimately fund every other insurance and/or replace any other asset you lose.

So here’s something that will keep you going if a setback occurs and will allow you to get on with life the best way possible, or will guarantee that lotto win if you really need it.  Better still the cost is tax deductible!   Most, if not all, the insurances mentioned earlier have their place and can be very important.

But please, even if you only have one insurance policy, please make sure it covers your biggest, most important asset of all.

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Matt Battye

Matt Battye

CEO, Financial Adviser

Analysing what can seem to be like complex issues, Matt is effective in using analogies to better explain scenarios and truths to the rest of us. This is what Matt enjoys – educating clients on the truths and debunking the commonly held (wrong) view.

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