Imagine if your employer gave you choice in the salary package that you could take.
For example, what if you were given the following to choose from?
a. Annual Salary = $50,000 plus 4 weeks annual leave, plus 7 days annual sick leave; OR;
b. Annual salary = $48,500, plus 4 weeks annual leave, plus 7 days annual sick leave PLUS 75% of your income is guaranteed until age 65 if you get too sick (or hurt) to be able to come back to work again.
Think about your choice carefully.
You could get paid the top salary and take all the risk yourself of being able to go to work each day and continue earning an income. Or you could forego a little of the income – but not your other employment benefits – in return for a guarantee that regardless of what happens to your future health you will keep earning money through your working life.
That is an enormous amount of potential risk that you can pass to somebody else if you want to, or you can choose to keep all the income and all the risk for yourself.
Put some simple numbers around it to help weigh up the options. If you are 45 and earning $50,000 p.a. through until age 65 then that is an even $1,000,000 in future income at risk – all dependent on you staying healthy and being able to go to work of course. Would you be willing to trade perhaps 3% of that to secure most of your future income for the rest of your working life?
Your employer wouldn’t ordinarily give you this choice, but you can arrange the package with a little help. The difficulty most of us have is not actually making the choice; it’s knowing what choices we have. Working out what is really at stake, what the chances are of different things happening, and working out what “risk management” strategies can be used is where Bay Financial Parnters advisers can help.
Income Protection Insurance is not the only consideration. Your entire personal financial situation is critical in identifying the right moves – Bill Gates doesn’t need insurance, but he still uses a financial adviser to work out what his choices are. In working out your best strategy you will need to take into account things like ACC and other benefit assistance. For example, WINZ provide a Sickness Benefit – if you are a single person you can get $225.03 per week (before tax), which might be enough. If you are married the benefit is much more generous at $375.04 per week (before tax).
If the benefit assistance doesn’t seem enough for you then you might want to review what is enough. Calculate what is actually at risk, what choices you have for managing it, what the cost of transferring it to another party is, and then be able to make an objective decision about the best “package of benefits” you can give yourself.
The ability to have salary certainty even if you are unable to work because of illness or accident during your working life is not actually something your employer can take care of for you. It is your choice on how you use your salary package, and what risks you keep though. It is also without doubt an area where sound financial advice can provide enormous certainty and value for you.
Reference: Sickness Benefit details (current)
Work & Income NZ, at 1 April 2011
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