Your livelihood is the most valuable asset you need to protect
What is the most valuable item to insure - your house, your car or you? We think you are the most valuable item to insure because of your earning potential.
Insuring yourself against loss of income seems to slip by a lot of people in terms of the standard insurance they will have. There will be a natural point to discuss life insurance, such as when you are buying a house, and start to plan for how to pay it in the event of death. You might even then start discussing the impact of critical illness. Certainly, when you start having kids, you will start planning a little more for what a critical illness could do to the family in terms of its financial well-being.
But when do you have a discussion around protecting your income? Income protection is an insurance policy put in place to allow you to receive an income in the event that you are no longer able to work due to injury or illness as assessed by your GP. It would provide a regular income to you until you're either able to return to work, retire or die. There are factors that will affect the amount you would pay in premiums for this insurance:
• Your age
• Your occupation
• The waiting period before your claim starts
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• The amount of illnesses you want to protect against
• Your current health (including if you smoke or not).
To assist in understanding why you may want it, have a think about the following numbers- £500; £15,000; £136,767 and £1m.
£500 would be a rough estimate of a TV for your home. More often than not, you would have this insured, via your contents insurance.
£15,000 may be the value of your car - you would have this insured via your car insurance
£136,767 is the current Northern Ireland standardised house price (From the August 2019 House Price Index), and you would be paying to insure that sum through your building insurance.
So, what would that last figure be? £1m is a rough estimate of what the average career earnings would be (40 years working at the NI average income of £24,864).
The reason that you can include in your lifestyle a TV, a car, a house and the insurance premiums for them all is because of this last one, and yet it is so often ignored in terms of protecting your future.
Which is going to have the biggest impact on you if for some horrific reason you lost it? Which would be the most important to insure?
In many cases, an employee would have some provision from their employer if for any reason they couldn't work, and there are statutory benefits to assist which can work in conjunction with this, but it wouldn't be likely that this would support the family.
You can choose the sum assured, and work to your own budget to get as much provision as you might need.
For the self-employed, this type of provision will be even more relevant. Without the additional security of sick pay, or provision for an accident at work causing you to miss any work ongoing, you may struggle to support yourself and your family, and as such are at even greater threat of losing your ability to work and earn.
Having a well-rounded financial plan in place, to cover you in all circumstances, will require some acknowledgement of this risk, and how to mitigate against it.
North Financial Management LLP is a Chartered Financial Planning Practice, based in Belfast, with clients across NI and the rest of the UK. Led by Richard Schwartz, they specialise in corporate financial planning, and if you wish to explore this protection, or any other financial planning strategy, please contact North at email@example.com or call 028 9047 2228