Ask anyone about their most important asset, and the most common replies will be the home, the superannuation and the car. It amazes me that so many of us overlook our income. Income is actually the key asset.

We spend most of our lives working or commuting or thinking about work. And the income we earn makes possible a mortgage, a car and some superannuation, not to mention raising a family, building a business and going on holidays.

So why would you insure your home and your car, but not your income?

If you couldn’t work for a year, who or what would pay the mortgage, the car finance and all the bills?

Research from KPMG shows that 35 per cent of employed Australians have no disability insurance, and 19 per cent of households have no life insurance. And that isn’t the whole problem: when they add underinsurance to non-insurance, KPMG finds Australians are underinsured for disability by $304 billion, and underinsured for premature death by $800 billion.

Why do Australians ignore their income as an asset? Over the years I’ve heard many reasons:

  • Creative avoidance – when you refuse to discuss negative things such as disability or death. This becomes easier when you don’t have an adviser.
  • Cost-benefit, when having compared the expense with the likelihood, people decide insurance isn’t worth it.
  • Aggressive sales techniques, which make us baulk.
  • The “already covered” syndrome, where people think that worker’s comp, private health insurance or their employer will take up the slack if they are incapacitated. The way I look at life insurances (which cover death and disability) is to focus on the asset to be protected, rather than trying to look into a crystal ball.

Start with what you know. The asset is your income. You can quantify your income, you can see the size of your mortgage and other expenses and you can see the shortfall should the income be removed.

This is what you’re protecting.

What you can’t do is predict the manner of your passing, or the accident or illness that means you can’t work. So don’t focus on the unknowable.

If you don’t like aggressive sales techniques then perhaps find an adviser you can deal with. And if you think worker’s comp, your employer or health insurance will cover you, then quantify exactly what these sources will pay you, under what circumstances and for how long.

In any event, most breadwinners need four insurances: death benefit, total permanent disablement (TPD), trauma cover and income protection insurance.

There’s a lot of emotion attached to life insurances. So start from the financial angle: your income is an asset and it must be protected.

Good luck.

Mark Bouris is executive chairman of wealth management company Yellow Brick Road.

Posted by Mark Bouris – Sydney Morning Herald on 10th September, 2015