In most cases, your home is not your most valuable asset; it's your ability to earn an income

With escalating property prices continuing to make headline news, it's no surprise that many people consider the family home as their most valuable asset. It's certainly one they fully insure. But have you considered that, over your lifetime, your earning capacity could amount to millions of dollars - putting the value of your family home well and truly in the shade.

The math on annual income

For instance, let's imagine you're currently aged 40 and are married with two kids, earning $150,000 a year as a logistics manager. Now, let's say that you plan to work until you're at least 65 years of age, and you can expect annual increases of a modest two per cent each year.

Over the next 25 years, your accumulated earnings will amount to more than $4.8 million to cover you and your family's lifestyle and living expenses – everything from the mortgage, to family holidays, your car, school fees, and more. Yet only one in three Australians has income protection insurance, putting many families at risk.

Peace of mind

While injury or illness may stop your income, it certainly won't stop the bills. Indeed, Australian cities are among the most expensive in the world. This high cost of living, coupled with the fact that Australians have a one in three chance of being disabled for three months or more before the age of 65 provide compelling reasons to insure your income.3

Affordability

These days, you can tailor income protection insurance to suit your circumstances and budget. If cash flow is a struggle and finances are tight, you might prefer to get income protection insurance through your super fund.

These days, you can tailor income protection insurance to suit your circumstances and budget.

Being insured through super is generally an easy and more cost-effective option although the amount of cover available is limited compared to holding income protection separately. So if you're an established professional with a high income, or if you want to maximise your retirement savings rather than dip into them for insurance premiums, holding income protection insurance outside your super will probably be more beneficial.

It's also good to know that, unlike other types of personal insurance, income protection premiums are tax deductible.

Two other factors influence the cost of income protection:

1. Waiting period

Policies typically come with a waiting period – and the shorter this is, the more expensive the premiums will be. So if you have enough savings to manage expenses for three or six months, it's worth extending this waiting period.

2. Length of benefit period

You can cover your lost salary for a specific length. The greater your benefit period the more expensive your premiums will be.

To find the most appropriate way to protect your most valuable asset, it's a good idea to talk with your financial adviser.