Protect your biggest asset of all – your salary!
Posted by Nick Lawlor on November 25 2013 @ 12:04
Over the years of having to sit through the very many pitches from various insurance providers in Ireland it has become obvious to me where the real value lies with the many insurance offerings. And it took some time to sift through them all, believe me. When bombarded with illness cover, partial payments, claims history, length of cover, hospital cash, broken bone above your wrist cover and so on, how is anyone who hasn’t studied (at length) the various products out there meant to know what to do?
In the majority of households I visit, people have made some attempt to engage with financial services but the reality is that I rarely find a household where a positive change could not be made which either result in better cover or a cost saving monthly.
This week I want to share with you all my thoughts on what should, in my opinion, be an absolute priority and starting point when it comes to insurance. I want to try and take some of the guess work out of insurance selection and suggest to you the one insurance product that I believe comes out head and shoulders above the rest. I want to make sure that you can make an informed decision the next time someone talks to you about your insurance needs.
When trying to prioritise the insurance needs for any individual you unfortunately have to paint a negative picture. The “what if” test. What if you broke your leg, what if the worst came to the worst, what if the dog needed an operation, what if my bags go missing on holidays? That’s why people pay for insurance. To replace a potential loss. But how do we prioritise these needs?
Firstly we must ask ourselves what tops the pile of things that would be missed the most? What is the biggest asset you possess? Most will say their home but in fact your home comes a distant second. The biggest asset in most of our lives is our ability to earn an income. Think about it. Everything you do in your life from day to day is dependent on our ability to go to work and get paid and only a small percentage of people in Ireland protect their incomes.
To highlight this take a household with 2 people earning circa €70k between them aged 30. They will earn circa €3.5 million in their careers to 65. €2.8 Million for the same couple aged 40 and €1.8m for the same couple aged 50. Money if you had now would mean never having to work again. The proverbial lotto win. There lies your biggest asset. From your income monthly you pay for your rent/mortgage, bills, holidays, kid’s costs, fun stuff, insurances and savings. But take away, for just a moment, the one common denominator which is your ability to earn an income and the house of cards collapses.
Interestingly when I review individual’s finances I will often see lots of things your income pays for insured but very rarely the income itself. Allow me explain. A recent study in Ireland showed that 75% of adults surveyed, had car insurance. Obvious enough as it’s a legal requirement. 52% had life insurance. 14% had pet insurance and 13% had mobile phone insurance. Only 8% of people, significantly lower than both pet and phone insurance, insured their income! The one thing that pays for everything else in their lives. Baffling.
The insurance itself, known as Income Protection or Permanent Health Insurance (PHI) is one that I strongly urge clients of mine to consider for a number of reasons. The first is that it covers all illness and injuries. It doesn’t specify which bone has to break or which type of heart attack you have to have to get paid. If you can’t complete your job due to any injury or illness then you are covered. Furthermore, it’s not a lump sum, it’s a regular payment, so if you are out for 10 years you will still be getting paid in 10 years. Further still, you get full tax relief on the premium. To the tune of 41% if you’re a high rate tax payer. So it means that your tax bill will be reduced while you guarantee that in the event of illness or injury, should you lose your biggest asset you will still have an income source.
The cost is based on your health, the amount of cover and your occupation and unfortunately it is not available to all. Some professions are simply uninsurable. Fork lift drivers and skydivers need not apply. But for everyone else who qualifies it is in my opinion the best value for money and most important product available and should form the starting point of your insurance considerations. And yes, that means before you insure the dog!
Nick Lawlor is the owner of Lawlor Financial Planning and is one of only a small number of Certified Financial Planners or CFP®’s operating in Ireland and is based in Keeper’s Cottage in Leixlip. Contact email@example.com or 0863161232 for a complimentary consultation. Nick Lawlor Financial Planning Ltd trading as Lawlor Financial Planning and Simplysave is regulated by the Central Bank of Ireland. Lawlor Financial Planning does not take responsibility for individuals financial decisions based on this article. “Making Money Make Sense”.