Protecting Your Greatest Asset

Let’s start this conversation with an important question, ‘What do you consider as your most valuable asset?’ Take a minute and think really hard about this.

Here are some ideas:

  • Property?
  • Vehicles?
  • Investments?

If you have answered yes to one of the above, you might not be entirely wrong, but have you thought about how you managed to acquire all these assets? Some people are in the fortunate position to have inherited certain assets, but the majority had to acquire these by spending their hard-earned income.

Now, think about my earlier question again regarding your most valuable asset. The answer I’m trying to get to is that your most valuable asset is YOU, yourself and your ability to earn an income.

Your ability to earn an income is an asset that cannot be compared to any other. Let’s take a look at the following scenario:

John is a 35-year-old engineer, earning  R 55 000 pm and expecting to be working until the age of 65. If we assume that his income will  grow with inflation each year (6%) then John will be earning an approximate R 52 178 402.90 over the next 30 years.

On his way home from a holiday, John was involved in a terrible car accident in which he became paralyzed from the neck down. Never able to work again. In the blink of an eye, a R 52 178 402.90 asset turned into a liability.

How could John have prevented this and protected his most valuable asset?

Income Protection – A monthly benefit that pays out in the event of temporary and/or permanent disability, equal to an amount calculated by you and your financial advisor. In most instances this amount should be equivalent to your net income.

Taking into account John’s earning ability over the next 30 years, a common misconception is that the insurance cost must be extremely expensive. Contrary to popular belief it is not. The chances of you paying a higher premium for car insurance is more likely. If we refer back to our previous scenario, and assume John is a non-smoker, then an estimated premium of R 966.00 per month will be payable to obtain income protection cover, sufficient to provide him with a pay out of R 55 000.00 pm. The income would escalate with inflation annually until his chosen retirement age. An added benefit is that this amount is not taxable.

If John chose to rather invest the above premium over the next 30 years, assuming that his monthly investment amount will increase each year by 6% and generate returns of 10% pa, then John could have accumulated R 3 208 488.00.

The logical next step would be to evaluate, ‘What are the chances of this happening?’

We have reported one of the leading Insurers in South Africa’s claims statistics below. These amounts were paid out in 2017 for Income Protection benefits alone:

Benefit Claims Paid
Temporary Disability R 474.4 mil
Permanent Disability R 410.4 mil
Total: R 884.8 mil

Below are the different age brackets for all valid claims that were paid out:

Claims by Age
21 -30 31-40 41-50 51-60 61-70 71+
4% 19% 25% 29% 20% 3%

At Harbour, we firmly believe in holistic financial planning. As such, we manage our clients’ available resources to achieve their ultimate goals. If the capital required is insufficient, then we have to plug the hole with insurance, while we grow their wealth. In our minds, investing and insurance are never an either or, they are equally important.

Please contact your Harbour Wealth Planner if you would like to review your current financial plan.

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