Income Protection through the Life Stages

Income Protection needs will differ depending on individuals and families, but there are certain patterns that are typical of certain ages and stages in one's life cycle.

Let us explore these life stages and provide you with general recommendations regarding your Income Protection Insurance as well as couple case studies.

This is not an exhaustive guide of all life stages, just some of the ones we see often. If you feel your situation is not represented below contact us to discuss your situation and needs.

Usually every working person belongs to one of these 5 life stages:

Footloose and Family Free Family Room Leading Lifestyles Established Families Empty Nesters
* Aged 18-29
* Establishing career
* No dependants
* Short-term debt
* Saving
* Aged 25 - 45
* Career
* Long-term debt through mortgage
* Marriage and children
* Aged 30 +
* Focused on career
* Long-term debt through mortgage
* No dependants
* Large disposable income
* Aged 35 - 55
* Family commitments
* Growth of investments
* Debts reducing
* Aged 50 - end of working age
* Preparing for retirement
* Family commitments reduce
* Low debt levels

Footloose and Family Free: Young, single and starting out

Income Protection Recommendation

43% of 18 - 29 year olds have a household income of over $60,000 (Roy Morgan Research 2003 & 2004). They need to protect this income to be able to fund their:

  • Rent
  • Bills
  • Lifestyle
  • Savings for home deposit and travel
  • Education
  • Financial independence

Income Protection will provide another income source in case they are unfortunate enough to be affected by sickness or injury. For an individual who earns $55,000, we recommend a protection plan with benefit payments close to $3,500 per month, with benefit payments to age 65.

Case study

Aged 26, Emma was financially independent and enjoying an active social life, team sports and doing well in a new career. Since graduating from University with an Interior Design degree, Emma got a job as a junior designer at a large architecture firm earning $55,000 per year. Emma loved renting her one bedroom city apartment but was saving hard for a deposit for her first home. Still taking most financial advice from her parents, they wisely advised her to see a financial planner who recommended that she take out an Income Protection policy when she started her full time job at the architecture firm three years ago. Emma's Income Protection policy provided her with a $3,437 per month benefit.

To keep fit, Emma enjoyed walking to her parents house for their weekly dinner. One night, on her way to a family dinner, Emma was involved in an unfortunate accident where she was hit by a speeding car at a pedestrian crossing. Emma suffered a broken arm which required surgery and faced a period of 10 weeks off work to recover. Although frustrated with her length of recovery Emma was relieved that her Income Protection policy provided her with the money she needed to ensure she could meet her rent and living expenses along with some additional funds to cover her medical expenses and rehabilitation.

Family Room: Young families

Income Protection Recommendation

Income is no longer just about funding one's own life, it's about taking care of the whole family. Income is needed for:

  • Mortgage
  • Bills and cost of living
  • Education
  • Family vacations
  • Investments
  • Lifestyle and entertainment

Income Protection will provide another income source in case they are unfortunate enough to be affected by sickness or injury. For an individual who earns $90,000, we recommend a protection plan with benefit payments close to $5,700 per month, with benefit payments to age 65.

Case study

Zach (34) and his wife Anna (30) had everything they dreamed of. A three year old son Jack, and another one on the way in two months time. Zach had also just been promoted to a senior electrical engineer and now earns an annual income of $90,000. Anna was a relief primary school teacher but ceased working six months ago when she experienced difficulties during her second pregnancy. Along with his existing Term Life and TPD insurance coverage, Zach's Income Protection policy ensured he not only protected his family but importantly his ability to an earn an income. Zach's income protection policy provided him with $5,625 per month benefit.

Zach grew up in Sydney's Northern Beaches and as a teenager became an accomplished surfer winning a number of amateur titles. Unfortunately, due to the many summers spent at the beach, Zach identified a suspicious skin lesion on his leg. Zach was diagnosed with a melanoma. Fortunately, it was found relatively early and post its surgical removal he was required to undertake a period of six weeks radiation treatment. Following his radiation treatment, Zach required some extra recovery time and returned to his job on a part time basis of three days a week. Zach's Income Protection policy enabled him to replace up to 75% of his income and would continue to pay him as long as he was unable to work, and also supplemented his income with a partial benefit payment whilst working part time. This certainly helped his growing family.

Leading lifestyles: Mature singles and couples with no dependants

Income Protection Recommendation

With health and income being their main concerns, Income Protection is a natural fit. Especially because they may be the only income earner to put money away for:

  • Mortgage
  • New car
  • Travel
  • Savings for retirement
  • Bills
  • Investments and negative gearing
  • Lifestyle and entertainment

Income Protection will provide another income source in case they are unfortunate enough to be affected by sickness or injury. For an individual who earns $130,000, we recommend a protection plan with benefit payments close to $8,200 per month, with benefit payments to age 65.

Case study

Zoe (32) and Brad (31) met in their early twenties while at University. Two years after they got married, Brad's grandfather passed away leaving a large inheritance to Brad. Brad and Zoe decided to use these funds to purchase an inner city terrace with only a small mortgage required. At this time Brad and Zoe ensured their personal risk insurance coverage was in place. Over the next eight years Brad and Zoe's careers progressed with a combined income of $230,000 per annum. They quickly paid off their mortgage within two years. They made other investments in the share market as well as undertaking extensive renovations to their home. Brad's income protection policy provided him with $6,250 per month benefit. Zoe's income protection policy provided her with $8,125 per month benefit.

One day whilst running late for a meeting, Zoe noticed that she became breathless quite quickly and felt faint however, Zoe ignored these symptoms and passed them off as a result of not eating lunch and stress. These symptoms began to appear more frequently and even a simple flight of stairs caused her concern. Brad insisted she see the doctor. Zoe consulted her GP who recommended she see a specialist cardiologist. After a series of tests conducted by the cardiologist Zoe was diagnosed with Cardiomyopathy. This heart condition affects the muscle of the left ventricle, causing it to perform less and less efficiently. As a result of her illness, Zoe decided in conjunction with her doctor and employer to take six months off work and return to work by reducing her working hours each day. Fortunately, Zoe's Income Protection policy replaced her lost income whilst off work and supplemented her income from the reduced working hours. She was able to put away the excess money in case the condition worsened and she would need further treatment.

Family Fun: Established families with older children

Income Protection Recommendation

At this life stage, income funds the lifestyle of the whole family as well going towards savings for future adventures and retirement.

  • Mortgage
  • Bills
  • Education
  • Superannuation
  • Investments
  • Vacations and cars

Income Protection will provide another income source in-case they are unfortunate enough to be affected by sickness or injury. For an individual who earns $250,000, we recommend a protection plan with benefit payments close to $15,700 per month, with benefit payments to age 65.

Case study

Peter (54) and Jill (49) have been married for 20 years and have three children in high-school. Peter is the Managing Director of an Australian IT organisation and earns $250,000. Jill is a renowned architect working in a partnership with four other architects and earns $120,000 plus new business commission. When Peter and Jill first married they struggled financially when their two children Christopher and Ethan were born. With the new two small children, Peter and Jill focused their attention on establishing a family home. They purchased a four bedroom home along with an equivalently sizable mortgage. Although money was tight Peter and Jill understood the importance of protecting their assets and the responsibilities of caring for a young family. Their financial planner assessed their insurance needs and Peter took out Term Life and TPD insurance and both took Income Protection. Over the preceding years Peter's income increased and they were able to reduce their mortgage significantly and also invest extra in their superannuation and other investments. Peter's Income Protection policy provided him with $15,625 per month benefit.

Jill's Income Protection policy provided with $7,500 per month benefit. Peter and Jill had always dreamed of a 3 month overseas holiday once the children were older. However, on a routine check-up Peter's doctor advised Peter to undertake a prostate test. Peter was diagnosed with early stage T1(a) prostate cancer and had surgery immediately to have his prostate removed. Good news for Peter though, following successful surgery Peter's doctor gave him the all clear. He was however, required to undertake some further treatment and his doctor instructed that Peter take a good 9-12 months to receive treatment and recover. Peter was able to draw on his Income Protection policy to ensure that he was able to continue to meet the financial commitments including the remaining mortgage as well as significant education
costs for the children's university and private schooling. Plus, Peter and Jill's retirement income was not affected.

Empty Nesters: Dependants have left home, single or double income

Income Protection Recommendation

After years of supporting children, empty nesters can now use their income to spend on their heart's desires and save for their long-term future. Their income is necessary for:

  • Bills and cost of living
  • Investments and savings for long term
  • House renovations or a sea change
  • Superannuation
  • Travel and treats

Income Protection will provide another income source in case they are unfortunate enough to be affected by sickness or injury. For an individual who earns $150,000, we recommend a protection plan with benefit payments close to $9,400 per month, with benefit payments to age 65.

Case study

Brian and his wife Dianne are both 55. They have three adult children and two grandchildren. Brian has run his own small accountancy firm for the past 30 years. Dianne also enjoys working for the firm as office manager, along with six other staff. Brian pays himself a salary of $150,000 and pays his wife Di a salary of $60,000. After working hard, they now own their own home and have built up substantial investments over the years. Brian and Di plan to retire and sell their accountancy firm within the next 10 years. Their focus is to build their superannuation funds and ensure they will have sufficient money to continue their current lifestyle and funding for retirement. They are also looking forward to travelling overseas and spending time with their grandchildren during their twilight years.

On the weekends, Brian enjoys working in his garden as a getaway from the pressures of the accountancy firm. One Sunday, whilst gardening, Brian suddenly collapsed and suffered a stroke. Fortunately, Di was nearby and Brian was rushed to the hospital. After several weeks in hospital Brian slowly recovered but required some speech therapy. Thankfully, Brian was able to claim on his Income Protection policy and was comforted by the fact that not only was his income being replaced but he was also receiving assistance from the extra rehabilitation benefits that are included in his 'plus style' policy. Brian's Income Protection policy provided him with $9,375 per month benefit. Following nine months of treatment and rehabilitation Brian felt well enough to return to the business however, lacked the concentration levels he once enjoyed which are an essential component to his work. After further consultation with his doctor Brian agreed that he would take a step back from his business and take on more of a consultant function. This new role would only require Brian to attend the office 1-2 days a week. Brian's reduction in income from the business is supplemented by the partial disability payments from his Income Protection policy. Thanks to this policy, Brian and Di can still fulfil their dreams and goals for the future.

Summary

Of course your situation might be totally different, so please fill our Enquiry Form and we will put you in contact with a fully licensed advisor who can provide detailed advice. And for limited time only, if you apply through Rate Detective you will receive 20% cashback for your first year's insurance premiums (no matter which insurer you choose). You will not receive it by going through the insurance companies yourself!

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Published on July 7-th, 2008 in Income Protection Insurance
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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Any information or advice contained on this website is general in nature and has been prepared without taking into account your objectives, financial situation or needs.