If you take out a home loan, you'll likely secure home and contents insurance for your property. If a new vehicle is on the cards, taking out the appropriate insurance policy is also a given. But what if you became unable to work?
How much cover do Australians need?
According to Rice Warner's most recent research relating to under-insurance, the median level of income protection cover across the nation's working population is just 16 percent.
In addition to this, the average couple, with both parents aged 40 years and children, need roughly 10 times their annual earnings worth of life insurance in order to repay debts and retain their existing living standards. If a working parent passed on, it's clear that even with this protection, there could be a degree of financial strain. Without it, things would be even more challenging.
"However, in order for the family's standard of living to be maintained in full, life insurance cover of 15 years income is required. Similarly, total and permanent disability (TPD) cover equivalent to 15 years income is required," Rice Warner stated.
In some instances, a breadwinner in the household may become too sick to work. Having income protection can help families continue to repay their home loans, put food on the table and pay off credit card debts.
Australians are under-insured
Despite the risk of things going belly-up if a parent is unable to work, many families don't have income protection or other types of insurance policies.
Australia's insurance penetration ratio for life and general insurance was three percent lower than the average of industrialised countries, as of the end of 2010, according to research from the Australian Prudential Regulation Authority (APRA).
The APRA further noted that Australians are generally under-insured when it comes to life and general insurances.
Why obtain income insurance?
There are plenty of reasons why under-insured Australians should give more thought to protecting their incomes.
Rice Warner explained the various household expenses that could quickly pile up if a salary-earner was suddenly able to work. For instance, mortgage or rent payments and the costs of raising kids were highlighted. While social security benefits and rebates can help families to a degree, these payments tend to only make a "modest contribution" to households' running costs, especially for those where parents are on above-average incomes.