What is your greatest asset?
If asked, most people would say their home, their 401(k), or their IRA. The truth is, however, that during a person’s working years their greatest asset is the ability to earn an income. Your earning potential is your greatest asset. For example, a 25 year old earning an average of $50,000 per year until age 65 will earn a cumulative total of $2 million. ($50,000 x 40 years) So unless that person has another asset that is worth more than $2 million, his earning potential is by far his greatest asset.
Unfortunately, many people often overlook this enormous asset when protecting their financial plan. While life insurance, health insurance, and home and auto insurance are all vital, what about your income earning potential? Over the years, I have found that many of the clients that I meet with spend more money each month insuring their $15,000 automobile (which is depreciating) than on their greatest asset. Why is this a problem? Because no estate or financial plan can be considered complete unless there has been an evaluation of the risks of disability. In fact, according to the National Safety Council, there is a 1 in 21 chance that the average American will have a disabling accident.
Planning to live is as important as planning to die, and the risk is greater. For example, a male age 40, long term disability is 2.9 times more likely than death.
Ask yourself: Who would pay for your salary if you were suddenly to become disabled?
Let’s look at what can happen without proper financial planning.
Before disability, most people are able to accumulate savings so that their income is greater than their expenses. However, after disability caused by a sickness or injury, income will fall and expenses will rise due mostly to medical costs. The expenses of a disability can be outrageous. They can quickly exhaust your family’s savings and even create a substantial amount of debt.
Sadly, many Americans have falsely believed that they can rely upon the government if they disabled. The truth, however, is that Social Security denies 70% of applicants upon their initial claims for disability benefits. And even for those few who are able to succeed in receiving a disability check from the government, these payments will rarely fill the gap created between falling income and increasing expenses.
So as you craft your own financial plan, don’t forget to protect your greatest asset. Just as life insurance protects a family in the event of an untimely death, disability income insurance protects both the insured and his family in case of the insured’s disability.