Shawn is a lawyer, husband and father in his 40s, with a gross annual income of $100,000. He has a mortgage of $200,000, plus other debts that total $100,000. As the main provider for his family, he works hard, invests and is careful about his finances.
Then, he’s diagnosed with prostate cancer. He’s told that he has to undergo chemotherapy and will likely be unable to work for at least six months. As the treatment continues, Shawn and his family realise it will be more than six months before he’s able to work again. This puts them in a tight spot.
Luckily, Shawn knew that other members of his family had had cancer and that it was a possibility for him too. Because of this, he purchased trauma insurance a few years ago.
Now, he files a claim with his insurance provider and receives $600,000: enough to pay off his mortgage and other debts, as well as cover at least some of his medical costs and his family’s daily living expenses.
Shawn has also built up an emergency savings fund, which should cover the rest. Thanks to his planning, his family’s situation—while challenging—is a lot easier than it could have been.
Your most valuable asset
Most people buy insurance for their house or car, but not as many think about insuring their most valuable asset: themselves.
Think about it: if you add up all the income you’ll earn in your lifetime, how much would it be?
For example, let’s say you’re 30 years old and you earn $70,000 in gross income (before taxes). Assuming your income increases by 3.9% each year, you will have earned $5,053,347 by age 65.
But what if something happens to reduce your earning capacity?
While no one likes to think about the likelihood of getting into a car accident, being diagnosed with a critical illness or becoming disabled, it’s important to know how often these things happen so you can prepare.
Here are just a few statistics:
Traffic accidents
- In 2023, there were 1,200 traffic-related deaths in Australia. That’s more than 3 people a day.
- In 2022, there were 61,500 hospitalisations from injuries sustained in traffic accidents.
Illness
- 1 in 2 Australians have a chronic health condition.
- In 2022, 1 in 20 Australians had heart, stroke, and vascular disease.
- About 2 in 5 Australians are diagnosed with cancer.
Temporary or permanent disability
- Among Australians aged 0 to 64, 1 in 9 have a disability.
- A 20-year-old has a 1 in 4 chance of becoming disabled before age 65.
If you lose your ability to earn income before retirement age, you could lose millions of dollars in earning potential—which will reduce your ability to pay back loans and save for retirement.
But you’ll get social security, right? Yes, but monthly social security checks only go up to $2,000 for an individual or $3,000 for a couple. While that may allow you to scrape by, it won’t help you repay your mortgage and other loans.
What about disability pay from your employer? If your employer carries disability insurance, and if you qualify for it, you’ll likely only receive 50-60% of your pre-disability income, and it may only last for a certain period of time.
That’s why having other sources of income ready to supplement social security, disability and unemployment pay is a must.
Have a plan
You never know when disaster might strike, which is why it’s important to have a financial plan in place if you or your family suddenly find themselves without the income you’ve relied on all your life. Building an emergency fund, saving for retirement and purchasing insurance are all ways to shore up your finances in case of an emergency.
