Have You Insured Your Money Machine?

Imagine that you have a machine in your basement. It is a fantastic machine, because five days a week it pumps out cash. Every year it produces $50,000 to $100,000 of new cash (sometimes more if you really tune it up). Based on this steady flow of cash, you buy a bigger house, a car, take vacations, and raise your children. But what would happen if the machine broke down and could not produce any more money? Shouldn't you insure that machine? And for how much (50% or 100% of the cash it generates)? Would you insure the machine ahead of your car? Before insuring your house? The contents?

Of course it would be great to have a cash-making machine, but one has yet to be invented. However, most families have a cash-making machine, in fact, some have more than one. What is your family's most valuable asset? For many, it is the ability to get up in the morning and earn a living.

Your most valuable asset

The most important goal in most people's financial strategy is retirement planning, to the extent that the term "financial planning" has become a euphemism for "retirement planning". We should recognize, however, that while retirement planning is a critical issue, it is not the only one.

Maintenance of income during disability is an issue that is not given nearly the weight of retirement planning, but is at least as critical (insuring the money making machine). Who pays all the bills when you're sick or hurt? Your financial plan should take this into consideration well before focusing on income during retirement. Since it deals with your most important asset, you should review your situation on a regular basis.

Income is crucial

The importance of income continuation during disability is twofold:

First, if like most people, you depend almost exclusively on your earned income to provide an acceptable lifestyle, no income will signify big trouble.

Ensuring an income during disability should be a priority. Sure, it's great to plan for retirement, but providing for your current income should be your main concern. The funding of your retirement is substantively (or maybe even entirely) dependant upon saving part of your regular earnings between now and retirement. No matter how comprehensive your retirement planning appears to be, it is imprudent to be left without money to put aside because disability has come between you and your work.

The second reason to plan for an income during disability is that it can happen to you.

Many people ignore the danger of not insuring their income by simply declaring that it would never happen to them. How likely are you to suffer a disability due to illness or injury? If you are 35 years old today, the odds of your being disabled for at least 90 days between now and age 65 are about 1 in 5.

Very likely it turns out. To repeat: One in Five!

However, that little statistic doesn't tell the whole story. The average length of disability for those who remain disabled after 90 days is about three years. Although each financial situation is different, most people are not in a position to live without any income for three years. It is simply not an option.

What is the solution?

One solution is disability insurance. The most important acquisition in your life can be a disability policy from a respected insurance company. Yet, as stated above, we insure our car, our house, and even the contents in our home, but very few spend the extra money to insure the most important asset– the ability to earn money. In other words, insure the moneymaking machine.

The reality of a disabled life without being able to earn income is far more harrowing than the reality of life without a basketful of retirement savings.

Bank of Canada Statistics report that 4 per cent of mortgage foreclosures are a result of a death…48 per cent a result of a disability!

If you have not reviewed your financial plan as it relates to disability insurance, please call our office for a review.