Are there alternatives to income protection?

Skydiving with HFIResearch tells us that 69% of Australians do not own income protection insurance*.

This alarming statistic begs the question about what the alternatives are for those people who choose not to insure their income.

The first factor to establish when looking at the issue of whether income protection may be worthwhile for your situation is to examine the potential loss that you may face if uninsured.

Take the example of a 35 year old on an income of $50,000 per year. If he or she intends to work until 65, they may expect to earn $1.5 million between now and retirement. If that same person owned a home worth $500,000 then chances are they wouldn’t dream of leaving it uninsured for even a day, however their income-earning ability is an asset worth three times that much in comparison.

With that in mind, what are the alternatives for those who are not insured?


Self-insuring simply means that rather than buying insurance to cover a risk, you allocate a regular savings amount to accumulate for emergencies. The main drawback with this approach is that you may need to ride your luck while you save sufficient funds that you can draw upon if disaster strikes (such as sickness or accident). How long would it take to build sufficient savings to create an independent income?

Would you be able to maintain the will power to continue to save throughout this duration?

Rely on others

Most families will have sufficient concern for each other that will motivate them to help each other out if another family member is in need. However, the reality is that some people may be uncomfortable relying on the generosity of others to support their living costs. There may also be the option of relying on organisations to provide material assistance but again the idea of being financially dependent on others may be extremely challenging for some people.

Accept the risks and hope they don’t occur

Some people may feel that the financial risks associated with suffering a long term sickness or injury are worth taking and therefore may make a conscious decision not to insure their income.

However, when you hear statistics such as the fact that there were an estimated 120,710 new cases of cancer diagnosed in 2012 this option doesn’t seem practical.

The only practical answer

Income protection insurance offers the only practical and costeffective solution that can help maintain your independence and self-sufficiency against financial disaster. A little sacrifice now by way of premiums (which in most cases are tax deductible) can provide a working lifetime of income and lifestyle security that simply can’t be achieved any other way.

* TNS/IFSA Investigating Income Protection Insurance in Australia July 2006
# Australian Institute of Health and Welfare website: