When young, we go to college to equip ourselves with knowledge and skills to increase our income generating capability. Our main income generating assets are human assets, i.e. our time, skills and knowledge. We protect these income generating assets, e.g. our body and brain, with life insurance. We increase the income generating capability of these assets with better knowledge and refined skills through training and experience.
With the income, we slowly build our financial assets, e.g. businesses, real estates and stocks.
After many years, even if we do not want to retire (for we are doing the things that we love and earning affluent and sustainable income out of it) we must be ready for the fact that one day our body will slowly lose its functional capabilities to earn. We will stop working. We will need to pay medical bills, healthcare expenses and will want to leave behind a financial legacy for our children and charity organizations that are in need. Thus, before the happening of all these inevitable natural events, we need to move our income generating pattern, from mainly consisting of human assets to financial assets. These financial assets will still give you a sustainable and continuous monthly income, keep growing and without depleting its original principal. (Yes, your depleting unit trust nest, that you built when young in order for you to withdraw when old, is a big problem. But your real estates that give you stable income until your body turn into ashes are one of the right instruments.) You buy appropriate insurance to protect such assets and the income that these assets generate.
When your main income generating assets moves away from human assets, life insurance (that protects your human assets and its income) becomes less important. But insurance for your financial assets, e.g. business, etc. becomes more important. Life insurance does have a part here to ensure liquidity arising from untimely death and to replace the skills of managing such financial assets.
Part 1 : The conventional idea
Part 2 : The breakaway wisdom: income and assets
Part 3 : Building assets(i)
Part 4 : Assets(i) planning
Part 5 : Further exploration on the principle
1. The principle in a nutshell
2. Definition of assets(i)
3. Classes of assets(i)