Business Brief

"What is my most valuable asset?” Not to be too philosophical, but have you ever thought about this question? Some might argue knowledge and wisdom are their most valuable assets, while others would vote for health and happiness. The answer to this question will differ from person to person.

When it comes to financial planning, the answer is simple: your most valuable asset is your ability to earn an income.

We turned to za.talent.com to look at the average salary professionals in specific occupations could earn. Medical doctors start their internship with an annual salary of about R720 000 per year. This may increase over time to up to R1.5 million per year. Based on the lowest possible income and an average of 6% inflation, a medical doctor could earn more than R32 million over 40 years of practising their profession.

Pharmacists, lawyers, engineers and accountants may start with a lower annual income, but their earning capability – according to za.talent.com – may surpass that of a medical doctor in some circumstances.

Income forms the basis of financial advice. If a disability or critical illness renders you unable to earn an income, the implications on your financial wellness could be catastrophic.

What does this mean for your clients?

PPS’s view of income and insurable interest

At PPS, we use a member’s gross professional income (GPI) to calculate the level of cover they qualify for. Here are a few things to remember when quoting for cover:

• A graduate professional that earns a salary may include their total cost-to-company salary, including the average bonus they received over the last three years.
• Self-employed professionals may include their total personal income from their business and 100% of their actual business expenses.
• Any income a member generates through their occupation may also be included in their GPI.
• Passive income does not form a part of a member’s GPI.

For example, Dr Tau owns a medical practice. During the week, he sees patients at his practice and over weekends, he locums at a nearby hospital.

In 2021, his practice’s turnover (expenses and profit) was R2.4 million. He used R1.2 million to pay staff and other expenses (actual business expenses). Dr Tau’s personal income from his practice amounted to R1.2 million.

He also earned R400 000 through his locum work at the hospital.

How do we calculate his GPI?

PPS would offer Dr Tau 100% cover on Sickness and Permanent Incapacity for his actual business expenses and 100% cover for his net-of-tax income.

We have a completely different view regarding graduate professionals, offering cover to new business owners and locums with no fine print on a pre-described amount of locum hours. To top it all off, we do not aggregate at claim stage.

It does not get any simpler than this.

Contact your broker consultant for more information on GPI to ensure your members are covered correctly.

By Driensie Coetzee, PPS Technical Marketing Specialist

* Kindly note that this does not constitute financial advice. The information provided is purely informational.

** PPS is a licensed insurer conducting life insurance business, a licensed controlling company and an authorised FSP.