Insure your greatest asset – your income: Mark Bouris

I am always amazed when Australians talk about their assets: they’ll tell you about their houses, their businesses or their boats.

It surprises me because in my opinion, your greatest asset is the ability to generate revenue.

I was reminded of this a few days ago when I was told of the plumber who had a stroke, leaving his wife with no form of income to cover the mortgage and other bills. When she called on her husband’s accountant to sort out the business, she got a surprise: he had income protection insurance.

Not every wife who calls her husband’s accountant gets a response like that.

Our economy has shifted to high rates of self-employment in the past 30 years, with professionals and tradies selling their services on a contracted basis. Although you see this most prominently on construction sites and mines, the legal, accounting, management and engineering professions have all moved towards contracting during my time in the work force.

This shift has been good for the economy and good for the contractors (in most cases), but I’ve noticed a glaring lack of sickness and injury safety nets in the contracting fields. The unions, over the decades, built a solid system of sick leave and workers’ compensation to protect the families of a worker who got sick.

But most contractors do not fall under the award system, and they also do not have the most basic of protection coverage: income protection.

Income protection insurance pays a percentage of a sick worker’s income during a period of inability to work due to injury or illness. The insured usually agrees to a waiting period, for instance you may have to be off work for two weeks before you are considered incapacitated.

It’s an invaluable expense for self-employed people because it goes some of the way to securing that crucial asset – income – while you’re lying on your back recovering.

The last research I saw on this subject was from AXA. It found that among self-employed males, only 23% of income was covered, and among female contractors, only 14% of income was protected.

At the same time, 89% of Australians have comprehensive car insurance.

If you’re a self-employed person in a household where your income is the main or the sole source of revenue, you should consider what happens to the bills and the mortgage and the vehicle costs if you have to spend a few months off work.

I’m not talking about a workplace accident, because when you operate through a company structure you need workers’ comp coverage, and most mining and construction companies won’t allow a contractor on the property without first showing his or her workers’ comp slip.

I’m talking about the scrapes and misfortunes that people go through away from the workplace: the broken leg at netball, the tummy bug in Bali, the stroke, the bout of pneumonia, the stomach ulcer, the hernia operation, the chemotherapy, etc. In short, the medical dramas that seem to happen to someone else until they happen to us.

The protracted global financial crisis has made us focus on our finances, and consequently Australians are pulling out of consumer debt and not taking mortgages in anywhere near the volumes they did pre-GFC.

This behaviour is essentially a de-risking of households – a choice to not hold debt lest something happen that reduces the capacity to pay it back.

There’s another way of looking at the same concern: insure your income.

For those who haven’t done it, I suggest you talk to either a financial adviser or to an insurance broker. Life insurance is not enough – it’s a welcome safety net to the people you leave behind when you die, and you should definitely have it if you are the main breadwinner and you have a mortgage.

But what if you can’t work for two months? You’re still alive, but that’s long enough to put the house at risk, to miss car payments, to max out credit cards and to put undue financial stress on your family.

Many self-employed people belong to a professional or trade organisation that offers income protection insurance, but they can’t make you take it.

I urge those who have not covered their income to at least talk to a broker and discuss why it is that you’d insure your car but not your main source of financial security.

Income is your greatest asset – it’s worth protecting.

Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.

This article first appeared in News Ltd. newspapers