When I ask my clients what their biggest asset is, I get a variety of answers. “My house” is the most common response. Others include “KiwiSaver”, “my partner” (sweet and often true), “my 57 Chev” (cars are not assets!). Sometimes people get close with “my health”. The answer I’m looking for is your ability to earn an income.
Ignoring pay rises and promotions and assuming inflation of 2%, a 30-year-old on $50,000 p.a. will earn a total of just under $2.5 m by age 65.
Statistics show that you are 2.6 times more likely to lose income from being off work for six months or more as a result of sickness compared to an accident. The period you have off work after sickness is typically much longer than for an accident.
Income insurance premiums are based on age and occupation, so premiums for a 30-year-old accountant will be a lot cheaper than for a 50-year-old welder. Yet there are ways that you can manage the cost of income cover:
- Have a 2 or 5 year benefit period, rather than to age 65.
- Have a longer wait period than the minimum 2 or 4 weeks.
- Split your benefit and/or wait periods, eg; receive a smaller amount sooner and the rest later.
- Reduce your ACC benefit to enable some of your ACC premium to go towards income cover.
- Around age 50, maybe reduce the income cover amount and have a bit of trauma insurance. But don’t forget to readjust your ACC cover.
If you think income insurance is expensive, try poverty.
Mark Lynch is a Financial Adviser. His Disclosure Statement is available free upon request. Any comments in this column are the opinion of the writer and should not be construed as financial advice.