What’s your biggest asset?
“’What’s your most valuable asset?’ is a question that we ask many clients,” said Demelza Lister, financial planner at Potts & Schnelle Financial Planning, “the answer is generally, their house, their Superannuation, or sometimes a rental property, but”, added Demelza, “the correct answer for most, that rarely comes out is, ‘me, the client!’”
“What we mean by this is that each of us has an ability to earn a wage or profit from our physical activities and if you multiply that by the time left in the workforce, you get pretty big numbers.”
Let’s look at some examples:
- Mary is 50yo and works in a factory earning $50k pa. She has 17 years to retirement so her earning capacity is $50k x 17 years = $850,000.
- John is 30yo and works as an electrician earning $60k pa. He has 37 years to retirement so his earning capacity is $60k x 37 years = $2,220,000
- Olivia is 40yo and works shift work as a nurse earning $80k pa. She has 27 years to retirement so her earning capacity is $80k x 27 years = $2,160,000.
And these examples don’t allow for wage increases!!
“I’m sure if we told John or Olivia that they are worth over $2,000,000 to their families, they would scoff at us,” added Paul Schnelle, partner and Certified Financial Planner, “but if something happened to them that forced them out of the workforce, and that could be something as simple as a bike accident or a trip on some stairs, then their family will ultimately be out of pocket big time.”
“Most people have some insurance through their Superannuation Fund, or as part of their home loan, but the reality is that in most cases it is much less than their actual financial worth to the family unit.”
Kristy Davies, manager of the Rutherglen office said, “we all know people who suffer or have died from unfortunate accidents and illnesses. It can be as simple as a bad back, or as consuming as a cancer scare. That is a real tragedy for them and their families who then have to live the rest of their lives coping with the emotion of the event. What is really sad, is when that physical tragedy is married with a financial tragedy, because they then have reduced or no income to help them adjust to the changes in their lives.”
“That is the role of income protection insurance”, added Demelza, “adequate insurance cover ensures that what is already a difficult situation for a family doesn’t become a double bunger. Insurance proceeds enable emotionally struggling families to at least enjoy some quality of life by being able to afford appropriate care and conditions going forward. Even a stay at home parent, not earning an income, is highly valuable when compared to the cost of paying someone else to do what they do around the home and then multiplying that by the remaining years to retirement.”
“Affordability of insurance is an issue for many, but it needs to be considered in the context of what you are getting,” added Paul. “It comes down to how you look at it. For instance, a $2000pa bill for income protection insurance sounds expensive for someone on $40,000pa. But if you turn it around, it sounds much more palatable as a $38,000pa wage with a built in guarantee to pay you $30,000pa until age 67yo if you are unable to work due to injury or illness.”
Potts & Schnelle are offering a free income protection insurance consultations for the months of January and February if you mention this article. To make an appointment with Demelza or Paul for a no obligation assessment.