Your income is your biggest asset. Is it protected?

Ask an engineer to name their most valuable asset and they might point to the family home, the car or their qualifications. Mark Everingham, founder and managing director of Personal Risk Professionals, offers a different answer: it is your ability to earn an income.

Everingham joined Richard Hopwood, Queensland state manager at PPS Mutual, at a recent Engineers Australia webinar entitled Planning for Uncertainty in Engineering Careers.  

“It is the foundation of how you set yourself up financially for the rest of your life,” Everingham said. On flat numbers alone – say $150,000 a year across a 30-year career – that earning capacity is worth around $4.5 million. “If you had a $4.5 million home, of course you would insure that,” he said. Yet many engineers leave their income unprotected.

That gap is widening. A 2023 study by NMG Consulting, the Financial Services Council and Deloitte found about 1 million Australians are uninsured for death and total and permanent disability (TPD), and roughly 3.4 million are underinsured for income protection. One in five Australians over 35 is unlikely to hold enough cover to meet their living needs.

Part of the problem is a familiar assumption: “I’ve got cover in my super.” Default cover inside superannuation may sit around $400,000 – often not enough to clear an average mortgage, let alone fund living costs afterwards. It is a starting point, not a strategy.

Three needs, four types of cover

A personal insurance strategy begins with three needs, Everingham said: repaying debt, replacing income, and providing contingency funding for costs most people never save for, such as out-of-pocket medical expenses, home modifications or education. “Our job is to quantify the extent of those needs,” he said. Insurance is not always the first answer, either; existing assets are considered first, so cover is appropriate rather than excessive.

Four types of cover serve different needs. 

• Life insurance pays a lump sum on death or terminal illness. 
• Income protection replaces up to about 70% of earnings if illness or injury stops you working; you choose a waiting period before benefits begin and a benefit period, often to age 65, over which they are paid. 
• TPD insurance pays a lump sum when you are unlikely to work again – and here a definition matters greatly for engineers. Cover inside super generally uses an “any occupation” test, whereas “own occupation” cover assesses your ability to return to your own specialised role. “Own occupation definitions are generally the gold standard,” Hopwood said.
• The fourth, trauma insurance, is the one Everingham considers most powerful and most underutilised. Unlike TPD, it pays on diagnosis of a serious condition such as cancer, heart attack or stroke, rather than waiting on a work-capacity assessment. “It allows you to immediately deal with out-of-pocket expenses, repay some debt and take time away from work,” he said.

How cover is set up also shapes how it performs. Retail policies arranged through an adviser are underwritten at application, with the engineer’s duties and other relevant information taken into account when the insurer makes its offer of cover, so capturing an engineer’s duties accurately at the outset matters, particularly where roles span office and site-based work. “You’ll outline your duties, and we take those into account when we make the offer of cover,” Hopwood said. Part of an adviser’s role is a medical pre-assessment, matching a client’s history to the insurer most likely to cover it well, since insurers view the same condition differently.