As I’ve said a few times in this column (and everywhere else), insurance although not sexy, is a vital part of the financial planning process and I would like to share a client experience that really illustrates this point.

A couple came to see me as they had got themselves into financial difficulty and were at the point that if unable to re-finance, losing their house was a real possibility. I sat down with them to solve their problems long term, they had a budget, which they had stuck to permanently, did not have credit cards and their only debt was for each of their cars.

They were hardworking and earnt good income, were fiscally responsible, so how did this happen?

One partner got sick, nothing dire, but they were unable to work for 3 months, no income for 3 months and they nearly ended up in financial ruin.

When we hear of people losing their house, our normal reaction is to assume they did something foolish, a gambling problem, lived beyond their means etc. This allows us to convince ourselves it would never happen to us. The truth is that the biggest risk of losing a house is due to lack of income, the primary reason for sustained long term loss of income is usually health related, and none of us are immune to injury or illness.

Ask yourself, if you or your partner was unable to work due to injury or illness, how long could you forego income before you were exactly like these clients and at risk of losing your house? Would it be 1 month, 3 months, 1 year??

In today’s society very few people could last much longer than a few months without an income, and this is why income protection is vitally important.

Income protection is designed to pay the insured an income in the event they are unable to work due to injury or illness, and in the case above had the client have had income protection insurance they never would have found themselves in the situation where losing their house was a possibility.