Personal Insurance for Accountants
Despite personal insurance being readily available, many accountants are still failing to protect their biggest asset; themselves. With years of education behind them, and years of earning potential in front of them, accountants are a valuable commodity. But why are so few protecting themselves with personal insurance?
The accountants insurance we're talking about is life insurance - the most common forms of which are death cover, total and permanent disability (TPD), trauma and income protection insurance.
Accountants insurance isn't just about protecting your family financially if you die. It's about protecting your lifestyle if you get sick or injured. So if you can't work for a while, or ever again, you've got a financial back-up plan.
You've worked to give yourself a good income. And your income is going to play a big role in your lifestyle, and that of your family, for a long time to come.
It sounds like something you'd want to protect, right? But underinsurance is an issue facing an alarming number of Australians, from all walks of life - including accountants.
Personal insurance for business owners
Many accountants are self-employed, adding another layer of financial responsibility to the equation.
Despite their significant personal insurance needs, many small business owners are also failing to protect themselves and their families with adequate insurance.
According to a survey by the Investment and Financial Services Association (IFSA), less than half of small business owners feel they have adequate cover (1).
So if they know they're not properly covered, why aren't they doing something about it?
One of the reasons is that there is a perception that insurance for accountants is too expensive.
But think about the sort of money you'd lose if you couldn't work for a few months; or worse, if you could never work again. It certainly helps put the cost of insurance for accountants into perspective.
Personal insurance could even reduce your tax bill
Income protection insurance is one of the most relevant types of cover for accountants - including those who are self-employed. It can replace up to 75% of your income if you can't work because of sickness or injury.
In the IFSA survey, 95% of small business owners said they were aware of what income protection insurance was, but 56% thought it was too expensive.
So cost is obviously a big reason for the lack of personal insurance protection.
But the fact 47% of respondents did not know that income protection premiums were generally tax-deductible shows there's a lack of understanding around how much insurance actually costs.
Business expenses insurance - which covers fixed business expenses like rent, electricity and non-income producing staff wages if you can't work because of sickness or injury, is also generally tax-deductible.
So if you run a business, you can combine these two types of policies to cover your work and personal expenses. And potentially reduce your tax bill.
How much does personal insurance actually cost?
Let's take the example of a 38-year old male accountant who earns $150,000 pa. He takes out:
- an income protection insurance policy to cover 75% of his income (or $9,375 per month), and
- a life insurance policy of $750,000 to cover his mortgage and other debts.
His total premium before tax is $2,709*. But because his income protection insurance premiums are tax-deductible, his after-tax premium is $1,625. At about $31 per week, that's the equivalent of a take-away pizza and a bottle of wine each week.
Get the personal insurance coverage you need
The best way to find out what personal insurance you need is to speak to an xLife adviser. We can help you get personal insurance cover, and make sure it's structured in a way that makes it as cost-effective as possible.
References:
1. 'Investigating Income Protection insurance in Australia' IFSA, July 2006.
Source: Asteron 2010
* Asteron Life Limited, based on a non-smoker taking out an Agreed Value Income Advantage policy with a 30-day waiting period to age 65 benefit period and a Life Cover policy, both with stepped premiums paid annually. # not including Medicare levy.
This information has been prepared without taking into account your objectives, financial circumstances or needs. Before making a decision based on this information, you should consider the appropriateness of this material having regard to your objectives financial circumstances and needs. You should consider obtaining independent advice before making any decision. Taxation laws are complex and subject to change. Please consult your tax adviser to discuss your personal circumstances. You should obtain, read and consider the relevant Product Disclosure Statement before making any decision to acquire a product.
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December 2010
