What is Income Protection?

The most overlooked insurance coverage in Malaysia.

Not too long ago, my little niece asked me a question;

“Uncle Kenny, how did a tree grow so tall?”
“Eh…”

My brain scrambles for a definite answer. Could it be the nutrients in the ground? Or water? Or perhaps it is simply by the genetic code of the tree?

“Uncle Kenny! Uncle Kenny! What is that thing growing out of the tree?”

I looked down at the sprawling roots of the tree and got my answer to her earlier question.

Of course, the earlier potential answers that crossed my mind did contribute to the growth of the tree. But I believe the roots play a really important role in determining how tall it will grow. How does it relate to income protection then? You see, a tree represents what we have in life. Our house, our car, lifestyle, pets, etc. Most of these are only realized because of the “root” in our life. Our income. Without our income, we would definitely not be able to afford what we have right now.

The Roots and Tree Analogy

A tree is only as strong as its roots. The quality of our lifestyle is dependent on our income. What happens if we are “uprooted” by “a sudden gust of strong wind”? We or someone we know would have faced this situation during the COVID-19 pandemic. We heard of salary deductions by up to 70% and worse, retrenchment.

Without income, our life would quite likely to have been turned upside down. Just like a tree.

The financial impact of COVID-19 is somehow softened by the government’s assistance given how it affects everyone. What if we are THE ONLY ONE impacted by it? Would we get any form of assistance? COVID-19 is just one of the many diseases that threaten our rice bowl. There are many stories of people who fall ill or met with an accident that stops them from participating in income-producing activities. When we are not able to work for a prolonged period, naturally our income will stop. Who can we then depend ourselves on to continue our livelihood?

Insurance, you say?

Yes and no, depending on what kind of insurance you have. When it comes to illnesses or disabilities, most people would only consider buying medical insurance to cover the potentially huge hospital bills. But it only covers hospital bills. It will not be able to cover your other bills i.e. utility bills, instalments, Netflix. That is where income protection insurance comes in. It will serve as a stop-gap or perhaps even an exact replacement to the income we lose during the time we are unable to work.

How exactly does one plan for income protection insurance?

The commonly referred to rule of thumb is this; you need
insurance coverage of at least five (5) times your annual income. This means a financial buffer of 5 years with the understanding that you will be ready to go back to the workforce after spending that said number of years in recovery.

To learn more about how you can plan for your income protection insurance, click below!