Is your greatest asset at risk? Better yet, what is your greatest asset? "Ah-ha," you say, "that's easy! It's my house." Wrong!
Although Canadians may spend approximately 30% of pre-tax income on home ownership - which is a hefty slice of any pie - an individual's greatest asset is his or her ability to earn income - the whole pie.
How is income an asset?
Think about it. Without income or cash flow, what will happen to your lifestyle? You can have the best savings plan. Your house may be mortgage free. You feel either your job is secure or you have an extremely marketable skill. Life looks grand! However, what happens if you are injured or incapacitated and are unable to earn income?
The simple math
Over a working life of say age 25 to 65, if an individual
averages $30,000 per year, their accumulated income will be $1,200,000.
Do the math for your own projected income. Think about how much income
you would lose if you were suddenly unable to keep earning.
Use this table to project your personal or family risk in terms of your future earnings loss. Keep this exercise easy and don't consider raises and/or promotions.
Why do I need protection?
If you have done the rough calculation above and know that you can replace that income through other means, stop reading. If you are unsure if you can replace that income, you had best read on.
Accidents do happen, even if we believe it is only to other people. (Remember that we are all "other people" to someone). In fact, Statistics Canada reported one out of every seven Canadians aged 15 and over - an estimated 3.4 million people - reported some level of disability in 2001. Without income, how long will it be before you have to convert your assets into cash?
Another fact is that it costs money to be alive and more money if you need special care. If you have not already done so, you best take stock and figure out what measures you have in place and where you might have assumed risk without knowing it.
What coverage do I have? Is it enough?
Okay, so what does "taking stock" mean. You should know if you qualify for or participate in:
Knowing what you have available is only one part of securing your greatest asset. Most important is the knowledge of how much income you and your family need to maintain a reasonable lifestyle. This means having your cash flow requirements covered for periods ranging from two weeks to lifetime needs. Your insurance sales person can assist you in figuring this out.
What happens if I change jobs?
Remember not to take group plan coverage for granted and don't take it as an absolute. In today's economy, some will find themselves moving from a large organization to a smaller one or maybe to a self-employed situation. Income replacement is often the last things on one's mind during times of change. Salary negotiation is a perfect time to find out about coverage, exclusions and to adjust your expected income. It should reflect the cost of individual plans if required. Now is the time to assess your needs in terms of your protection.
There is also the pitfall of "pre-existing" conditions or exclusions. Before you make any decisions on purchasing coverage, be sure you understand the ins and outs of this little catchall. Whenever you are dealing with an insurance product, be sure you are complete and truthful in providing health and lifestyle information. Be certain to obtain, in writing, any offers or assurances of coverage, especially when it comes to pre-existing or exclusions coverage. Understand what you are buying - it is your right!
Why didn't my advisor talk to me about this?
For those of you who have a Financial Advisor, I am sure they have done their job and already assessed your income and life insurance risks. If your advisor did not, it might be because you were reluctant to give information or you just wanted to make an investment and not "bother" with an assessment at that point. Your loss then and it will be your loss later too. Do not hobble your advisor by withholding information. Your future depends on complete disclosure. Call your advisor today to arrange for an assessment.
You, your family and the future all depend on cash flow. There are several different methods and tools to determine cash flow requirements and the best tools will allow for "what if" scenarios. The important part here is that you do the planning and put thought to this task immediately.
Planning takes time
Yes, the information and work required in completing an assessment for disability or income replacement is very similar to the requirements in determining life insurance needs. (Life insurance is a topic for another time.) Understand, when discussing income replacement or disability insurance with your advisor, it does make sense to do a life insurance check-up at the same time.
Security is yours for the taking
One thing I have found true about insurability
is that you will never be more insurable than you are right now. Oops,
did you hear that moment swoosh by? You are now less insurable then when
you started this paragraph. Such is the nature of risk. A life can change
in the blink of an eye; a mere moment or a heartbeat. Be certain that
you and your loved ones have cash flow protection. You cannot afford not
Eve Brouwers is a successful business strategist working within financial services for the past 25 years. Her hallmark no-nonsense methods make her the consultant of choice when businesses want to get serious about results. Eve can be reached at Nautical Consulting Group email@example.com
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