Finance News

Measuring the cost of a curve ball

What is a curve ball? It’s an unexpected, often deceptive and hard to predict event that enters your life when you least expect it. That’s why they’re so overwhelming – in sport and in life. Here we present some fascinating data available on the kind of curve balls that can affect your life, your finances and your retirement.



The most important figure here is that before turning 65, one in three Australians could be disabled for three months or more1. Combined with another concerning fact – that 60% of Australian families with dependents will run out of money if the main income earner can no longer bring in an income – the problem becomes apparent. Curve balls are commonplace, but many people are not prepared for them.



Under the pressure of a mortgage, school fees and day-to-day living expenses, you could reduce your savings quickly and encounter financial difficulty.



This table displays what’s at stake in terms of potential earnings to age 65. For example, if you are currently 45 and earn $80,000 per annum, you could earn around $2.15 million over the next 20 years. Isn’t that worth protecting?

Current income (per annum)
Age now
25
35
45
55
$40,000
$3,020,000
$1,900,000
$1,070,000
$460,000
$60,000
$4,520,000
$2,850,000
$1,610,000
$690,000
$80,000
$6,030,000
$3,810,000
$2,150,000
$920,000
$100,000
$7,540,000
$4,760,000
$2,690,000
$1,150,000
Assumptions: Income increases by 3% per annum. No employment breaks. Figures rounded to nearest $10,000.

Deciding on your Plan B?

When dealing with a curveball the last thing that you need to deal with is your finances. This is where many people realise the value of insurance - when you need it and don’t have it.



Income Protection insurance could provide you with a monthly benefit of up to 75% of your income to replace lost earnings while you recover. Many Income Protection policies provide a variety of waiting periods before you start receiving the insurance benefit (with options anywhere from 14 days to two years). Additionally, you can also select from an assortment of benefit payment periods, with a maximum cover usually available up to age 65.



Other things to consider
  • Income Protection insurance premiums will normally be less if you choose a longer waiting period and shorter benefit payment period.
  • If you don’t have enough cash flow to fund the Income Protection premiums, you may want to place the cover in superannuation, where the cost will be deducted from your account balance.
  • Other curve balls you may want to insure for consist of critical illness (such as cancer and stroke), total and permanent disability and death. These curveballs can be covered by different types of life insurance, which you may want to think about.
1 Calculations based on data from the Institute of Actuaries of Australia 2000. 
   Interim Report of the Disability Committee. IA Aust: Sydney.





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