I’m pretty sure you go to work each day because you ‘have to,’ not because you ‘want to.’ So, how important is it for you to keep your job and continue to earn money? If you got laid off tomorrow morning (hypothetically speaking) and you could not secure another job for the next 5, 9, or 22-years (again, hypothetically speaking), what plans do you have in place for you and your family? What if you weren’t laid off, but got injured badly enough where you couldn’t secure and retain a job? Because the answer to “why you work” is most likely “because I need money to live,” what steps have you taken to insure (not ensure) the income your family depends on won’t stop if you become injured or disabled and unable to work?
These questions are exactly what you and your family need to talk about before anything ever happens. Today, it is possible to buy “income insurance” to supplement income lost because of an illness or injury that prevents you from working at the job you are trained for. This is also known as disability insurance. Many employers offer this coverage on a short-term basis, but do not have a comprehensive policy to cover you through a possible retirement age of 65, 67, or even 70 years old. When it comes to protecting your most valuable asset, why would you not insure it? To illustrate my point, read on below.
A $30,000 car with a 35 year old driver is typically insured at a cost of $1,200/yr. or $100/mo., or 4% of the value. A $400,000 home (replacement–rebuild cost) is typically insured with a home owner’s policy costing around $1,000/yr. or $83/mo., or 0.25% of the value/benefit. A thirty-five year old who earns $80,000/year and receives a 4% salary increase each year would have earned almost $4,500,000 by the time they are 65 years of age. To insure this income replacement with a “net” (aka: tax-free income if you have been paying the premiums yourself) benefit of 60% of the previous gross income of $80,000/yr for 30-years, a typical policy might cost $2,100/yr. or $175/mo., or 0.15% of the lifetime “net”benefit of $1,440,000. If the policy is “inflation adjusted” the reward would be even greater!
The point is that most people insure their worldly possessions either because the law requires them to or they feel that the complete loss of their boat or car would cripple them emotionally and financially. However, the proprietary power to earn income far supersedes the cost of the toys in your garage, or even the home that you live in.
Integrating a disability policy into your comprehensive financial plan can help to mitigate the risk of losing income due to an unforeseen event. This, in turn, will help you to stay on target for your other goals, both financially speaking and emotionally. Feel free to inquire with my office to find out if you qualify for “income insurance.”