Last week I discussed life insurance and the desirability of paying it through a superannuation fund. Life insurance used to be the most common form of investment in Australia and at that time AMP really was a BIG Australian. The only problem was that you usually had to die before the insurance payout could be “enjoyed”.

Along with a significant number of other expenses – rates, school fees, doctors bills – insurance was among those classified for tax purposes as “concessional” deductions. In other words to get a tax deduction the Tax Office was making a big concession in allowing such payments to reduce your tax.

The concession actually survived most of the Hawke and Keating years but finally became a thing of the past in 1992. At that time I had long since decided that there were much better investments, especially those which I could enjoy while I was still living.

However, even if you live in a $500,000 house the greatest asset that you have, assuming that you are working, is your ongoing capacity to earn money. That asset is in my opinion certainly worth insuring.

A 25 year old earning $35,000 a year will earn at least $1.4 million over the next 40 years. The “present value” of that $1.4 million is a very substantial asset and like your other substantial assets (your house, your house contents and your car) should be insured.

Income protection insurance is a tax deduction. The Tax Office rightly regard the expense as being necessarily incurred in gaining assessable income. For younger persons it is not very expensive and considering the value of the asset still represents good value for older workers.

Income protection should be an integral part of all prudent financial plans, but although it may be paid by a superannuation fund as part of life insurance it is better from a tax point of view to be paid outside super.