Philip Holland Financial Independence financialindependence.co.nz

I was talking to a young professional in his early 30's last week who told me that he did not need any insurance because he was young, healthy and did not have any children to support.

He then proceeded to tell me that insurance was a waste of time and only for old people.

It was an interesting conversation and when I asked him the following questions he started to ask a few more questions:

1. If you could not work where would you live?

2. What is your largest asset and would you want to protect it?

If you could not work where would you live?

This really made him think, as he was flatting at the time. His answer was that he would probably have to move home with his parents. I then asked him if his parents could afford to look after him financially. He looked at me blankly and said, ‘probably not'. However he said ACC would pay 80 per cent of his income, so that should be enough to live off. After some further discussion around the fact that over 60 per cent of people who claim for income protection insurance do so as the result of an illness and not an accident, he started to think.

What is your largest asset?

For almost all young people their ability to earn an income is their largest asset by far. In this case the young man was earning $50,000 a year and this was set to rise to $90,000 over the next three years.

If we add on 3 per cent pay increases until he retires, his potential earnings from now until retirement are a whopping $4.6 million.

So why wouldn't he want to protect this large asset? When I showed him this and that it would cost him just over $10 a week to protect his income (which was also tax deductable) he signed up straight away.

So do young people need insurance? Yes they do. It is a small cheque to write out, but there is also potentially a huge cheque to receive.

Philip Holland is Managing Director for the Financial Independence group, Tauranga's leading specialist insurance and mortgage advisers. For further information please contact an adviser at Financial Independence 07 578 4414 or email info@yourbroker.co.nz. A Disclosure Statement is available free of charge on request.