If the population is asked “what is your most valuable asset” often the answer will be your house. But this isn’t necessarily correct. Your most valuable asset is you, in the sense of your future potential income. Over your working life it will add up to a surprisingly large figure. For example based on earning the current minimum wage, working from age 21-65, you would take home before tax approximately £575,000 based on a 35 hour week.
So what is that £575,000 really worth? Of course it’s paying for the roof over your head, covering the monthly mortgage payment, but it’s also so much more; a diamond ring, the brand new toy that comes out at Christmas, birthday meals and those family holidays in the sunshine.
But what happens if something goes wrong in the midst of the engagements and family holidays? Some of you may have life insurance which will help your family out in the unfortunate circumstance of your death. That’s a massive help, it means a lump sum will be paid out which can pay off existing debts such as your mortgage. It can also help your family live an easier life financially going forward. However what if it’s not something so big but equally as bad?
If you become ill or are involved in an accident which means you are unable to work, how would your family cope with the loss of their most valuable asset? Depending on where you work you might get sick pay for a while, perhaps you will get paid in full for a week or a month, which is fine if you get the flu; but lets be realistic, we all know someone that has suffered from a more serious illness and only then does it become apparent that the sick pay benefit scheme at work isn’t so beneficial. With state benefits becoming more minute they are not something that can be relied upon either.
So what can we do to protect ourselves? Income protection insurance is something we quote for everyday here at Kieron Bassett Financial Services. This type of policy will pay out a regular tax free monthly income equivalent to 60% of your salary if you are unable to work due to illness or injury. Unlike other policies which cover you only for a couple of years or are reviewable such as accident and sickness insurance, this policy will continue to pay out from the time you claim until you return to work, reach your selected retirement date or die. Taking the example from the start that could be a maximum of £345,000 paid out for someone earning minimum wage.
There are also different deferred periods, for example if you are lucky enough to be paid full pay for three months, you can defer the payments and this will make the premiums cheaper. Premiums aside I believe this insurance is invaluable, and should play an important part in any family’s financial plan.
Sammy McCann BSc (Hons) Cert CII (MP)
10th October 2016