Insuring against loss of income

For young people in particular, their biggest asset is their income-earning ability 

Not all people have enough income protection insurance.

It's amazing that so many financial planners don't talk about it. 

About 35 per cent of people insure themselves for income protection - and the vast majority of those people are self-employed. 

Many people in full-time employment rely on an income protection through superannuation that they may not actually have. 

A lot of people think they have protection through super when they don't. 

Also, people don't understand the difference between total and permanent disability benefits and temporary disability benefits. 

Take a moment to check your policy: the answer may surprise you.

Attitudes to income protection can be baffling. 

If you don't have an income, then there are all the other things that are dependent on that - you can't pay the mortgage, you can't feed the family. 

A lot of people could only go a month or two without income.

Then there's redundancy. 

Many mortgage providers offer - and sometimes insist on  mortgage insurance.

It's estimated that ten per cent of people have taken income protection with their mortgages over the long term. 

But that's more historical than current; it used to be more like twenty per cent and now it's more like five. 

People feel a lot more confident.

This sort of insurance means that if you lose your job, or your ability to earn income for another reason, the policy will continue to pay your mortgage. 

Periods vary with policies but can be one to two years.

Some institutions require people to get mortgage insurance, particularly if they are gearing heavily in their mortgage. 

If the loan to value ratio is above 80 per cent, for example, many lenders will require mortgage insurance ... with good reason for doing so: at the 80 per cent level, about 1 per cent of mortgages default. At the 90 per cent level the default figure climbs to 2.5 per cent.

Then there's the loss of income from an untenanted rental property. 

Landlord insurance can cost as little as a couple of hundred dollars and covers, for example, defects in the building or damage caused by a tenant. 

But if you can't rent it just because it's unpopular, you can't protect against that - it's a case of looking closely at the quality of the product in the first place.