A man’s greatest economic asset

BY FAZAAD BACCHUS

Ask any person this question. Tell me what the greatest economic asset you have and quite surely the answer will be – my home. For most people, their home is their largest asset because of what it costs and the debt that is related to it. Hence many people will dare not think of not having insurance on their house in case of fire etc. Such a loss could be quite rare, happens only once in a lifetime, but when it does, it is quite catastrophic. It takes years to rebuild and generally this is an insurable asset.

Let us suppose you had a machine that was capable of producing an income for you every day for the next 40 years, would you guard it carefully, tend and care for it, even insure it in case someone steals it away from you? Most people would agree, yes they would do all those things because the machine has a capability of producing money for many years. And let’s suppose that this machine produces $4,000 every month religiously and will do so for 40 years, this machine shows that it has the capacity to produce in its lifetime, a sum of $1,920,000. If you had a machine like this, would you insure its value? I am certain the answer is a resounding yes. And the reason you would do so is that the loss of this machine would be too significant a loss.

Let’s talk about what I believe is a man’s greatest economic asset; his ability to earn an income and his future earnings capacity. Like our machine example, a man spends the first 20 to 25 years in school and we call these his learning years. He is preparing for his earning years, which will be approximately another 40 years. Generally, the more dedicated he is in the first 20, the more likely he will earn a higher income. These 40 years that he is expected to work are his earnings potential, some people will have a greater potential that others.

Consider a young surgeon who has just graduated or a young lawyer, can you see the potential I am referring to? What do you imagine is their earnings potential? More than likely it will be far more than our machine at $1,920,000. And what should our surgeon be insured for? I hope you can see where this point of view is going.

Far too many times we think of tangible things as our greatest asset, when our greatest asset is our ability to earn an income. Ask the question again; what is your greatest economic asset and suddenly it dawns on us that our ability to earn an income is our greatest asset. Many young lawyers and doctors make sure that they have insurance coverage, especially disability or income replacement insurance to provide for them if they couldn’t earn an income. Do you?

A person should at least insure himself for 20 times his annual salary if he has 20 or more years to work, at least 2 years worth of disability income replacement and at least 1 year’s replacement income should he suffer a critical illness. You are your earning machine, make sure you’re insured.