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Show Protecting Your Most Valuable Asset By Bart Spencer If you were to ask I most people about their assets a typical discussion would include a home, investments, cars, and recreational vehicles. While all these have value, the largest asset people have is their ability to earn a living. This intangible, but very real asset is what supports all the others. We shall here discuss the importance of insuring your income via disability income insurance. Everything we have rests on income. If we take income out of our lives, the rest of the elements collapse leaving us to pick up the pieces the best we can. You might be surprised how much this income asset is worth. A forty year old earning $60,000 per year, who receives no raises has the earning potential of $1,500,000 by the time age 65 comes " along. A 35 year old earning $100,000 per year would have an economic value of $3,000,000. If you were a business owner possessing a machine the put out money every day and the potent^' were $3,000,000, would you not want to protect it, to assure you the return you desired? You are that "money machine", every day when you go to work. There are several ways of managing the risk of protecting your income. Some people assume the risk themselves, hoping that nothing bad will happen and that life will go on without interruption. In other words, they "self insure". While this approach might seem appropriate, do we "self insure" our homes, cars, or other valuables? Most do not, and per- rionc mf i'l-mnld Innk at annrhfr atrprnarive inancial Advisors. Is Your Agent ft Member? October 11, 2015 7 tadfrom page 5 to protecting our most valuable asset, the ability to earn an income. By purchasing a disability income insurance policy, you are able to transfer the economic risk of being unable to work due to sickness or injury, to an insurance company. These policies provide you with an income, when you are unable to provide one for yourself. Many employers provide group disability insurance—this is a great fringe benefit. Please keep in mind the following: most group disability policies will replace only a certain percentage of your income. The most common is 60% of your pre-disabtlity earnings. This equates to a 40% pay cut upon becoming disabled. In addition, there may be a "cap" or limit on benefits. Frequently there is a maximum monthly benefit of $5,000. What this means to you is that your benefits will be no greater than the cap, even though the policy offers a benefit of 60%. Also misunderstood is that if you are on claim under an employer paid policy, your disability payments will be subject to taxes. Additionally, group disability income coverage is not "portable" should you change employers. In other words, "you can't take it with you.", if you change jobs. An answer to the above is the purchase of additional individually owned coverage to help cover the shortfall. By no means has this been meant to be an exhaustive explanation. Hopefully, you have now become better informed to discuss with your advisor, your individual situation. In turn he or she can assist you with fitting disability income insurance into your financial plans. One last thought: "It is better to have a disability policy that you don't need, than to need one you don't have." |
