Your most valuable asset
What’s the most valuable asset you own? Is it your house, your car, or perhaps the value of your pension scheme?
Unless you are approaching retirement, the most valuable asset you own is likely to be you! Or to be more precise, the cumulative value of your potential future income from working – your human capital.
Wealth is created by gradually converting your human capital into financial capital whether that’s in the form of investments, property, pensions or physical capital.
The average present day value of human capital for people in the UK is £471,000. But for those with a degree or equivalent it is estimated to be £628,000, compared to £274,000 for those with no qualifications.
The total value of what you might earn over the rest of your working life could therefore be a very substantial amount. You can get an estimate of the value of your human capital by using this calculator
NURTURING AND PROTECTING YOUR HUMAN CAPITAL
Nurturing and protecting your HUMAN CAPITAL should, therefore, be one of your key priorities. You can nurture it by improving your skills, knowledge and experience to maximise your earnings and protect it by looking after your mental and physical health to ensure you are able to work.
But what if you suffer a long-term illness or disability which stops you from working? What happens to your human capital and the ability to fund your spending?
Statutory sick pay in the UK is currently just £92.05 per week and is paid via your employer for up to 28 weeks if you qualify after 4 days of sickness. Research by insurance company Legal & General shows that the average employee would be on the breadline if their income stops after just 32 days.
Many employers have more generous sick pay arrangements, but most will usually stop paying your income after about a year. Apart from a terminal illness or permanent disability, you won’t always be able to access your employer’s pension or there might not be enough pension benefit to support you if you can.
And if you are self-employed, other than any state benefits, you are on your own.
You can use this simple calculator to work out your own situation and the risk to your financial wellbeing.
MINIMISING THE RISK
So how do you make sure that the money keeps rolling in if your health stops you from working?
If you are an employee check whether you are covered by a staff income protection insurance policy through your employer. This will usually be stated in your staff benefits portal, benefits statement or staff employment handbook
This insurance, which is paid by your employer, provides a proportion of your basic salary after a waiting period (typically six months), until the earlier of your normal retirement age or you return to work.
If your employer doesn’t have income protection insurance, or you are self-employed, you can buy a personal income protection policy.
A personal policy with a £1,000 monthly inflation protected benefit, paid after a six-month waiting period, would cost about £10 per month for a 30-year-old non-smoker doing a clerical job. Higher benefits, older ages, higher risk jobs and smoking will all increase the cost.
You buy insurance to protect your house, your car and even your mobile phone. Doesn’t it make sense to make sure you protect your most important asset – your human capital - because all your other plans and needs rely on it?
 Office of National Statistics, ‘Human capital estimates 2014 to 2015’, available at https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/articles/humancapitalestimates/2015