Today I heard a radio ad for a casualty insurance broker. The gist of it was, “Your home is your most valuable asset and you should use our services to make sure it is covered properly.” That is good advice. You should take care to cover your home properly. Proper insurance is not work for amateurs.
However, I would quibble about your home being your most valuable asset. It is almost certain that your career is worth more. How well is it covered for losses?
Let’s see a simple example. Earning $60,000 per year now and interest is 4% and inflation 2%. Career has 25 years to run. Present value $1,150,000.
If you earn more than just salary, then it is higher. Consider pensions, government pensions, group insurance, and other benefits. In many cases, benefits are worth more than 30% of salary. Maybe $1,500,000 makes more sense.
Using the 10 year bond rate, you would need $2,000,000 to earn interest of $60,000 or about $1.3 million to fund a 3% mortgage.
Either you have a very nice house, which is not easily afforded on $60,000 per year, or your house is not your most valuable asset.
If insuring your house properly makes sense, and it is my belief that it does, then insuring your ability to earn income must be at least as important.
You should think about it in terms of insuring what your income means to you. Pleasant life, security, a safe place to live, debt payments on time, savings for education and retirement.
Talk to someone who can assess what income means for you, can provide an efficient way to get appropriate coverage, and can provide ongoing support as your circumstances change. There are no do-overs if something goes wrong and living without income is difficult.
Again, this is not work for amateurs.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.