What is your most valuable asset? If you said your house or your car or your investments, you'd be wrong. Your most valuable asset is YOU. More to the point, it is your income-earning potential, sometimes referred to as your Human Life Value.
Your Human Life Value is based on the concept that, in many respects, you are a money machine. Not very flattering, perhaps, but nonetheless true. Each week, each month, year after year, it is the income produced as a direct result of your work that keeps the economic wheels of your household turning smoothly.
Your income helps guarantee that the bills are paid, college tuitions provided, your family's lifestyle maintained — that, each and every month, the money is in the checking account to pay the mortgage, auto and other loans, buy clothes and put food on the table.
What is your Human Life Value? Probably a lot more than you think. Here is a simplified rule-of-thumb way to calculate how much you are worth as a "money machine" to your family: simply multiply your present annual income by the number of years until you plan to retire.
What is your Human Life Value?
1. Current Annual Income: $
2. Years Until Planned Retirement:
3. Your Current Human Life Value (Multiply Lines 1 & 2):
Hypothetical Example: If you are 38 years old, plan to retire at 65 and have a current annual income of $45,000, your Human Life Value is $1,215,000 ($45,000 x 27 years to retirement). Keep in mind that this is your minimum financial value, based on the assumption that you live and remain healthy. It does not factor in (1) inflation or (2) real dollar increases in your income over time. So, your actual value is probably a great deal higher! Still, this amount does give you some idea just how much you are financially worth to your family.
What if Your Income "Broke"?
Unfortunately, your Human Life Value is also the amount that your family is at risk of losing in future income should anything happen to you. Take the danger of disability, for instance. What would happen to your family if your income "broke", if you become disabled and were unable to work? This question is more than just idle speculation. The possibility is real.
Protecting Your Most Valuable Asset
What are your options? If you become disabled, there are five possible ways to deal with the money side of your situation:
- Tap into savings. But how long will the funds last? You could use up in a few short months assets that took years to accumulate.
- Borrow. But who will lend you the money? Even family and friends can only help so much. This is a short-term and potentially short-sighted solution.
- Sell assets. But if you have the assets to sell, what price will you get for them? Will you sell your home? Your cars?
- Count on Social Security. But will your claim be approved and, if so, how much will you receive?
- Transfer the risk to an insurance company.
We recommend option #5. It's cheaper, safer, smarter in the long run — especially when you look at the dollars and cents.
Here's why: For the sake of discussion, say you're 35 years old and earn $30,000 a year, or $2,500 a month. After federal, state and Social Security taxes, you actually bring home approximately $2,000 a month. That's your potential loss if you become disabled. Let's say it actually happens — you become disabled, and remain unable to work for five years. To maintain your family's current lifestyle, you may need to come up with as much as $120,000 ($2,000/month x 60 months)!
If you insure the risk, your out-of-pocket costs are actually minuscule. For the sake of our illustration, say a plan providing $2,000 a month would cost you approximately $2,000 in premiums a year — just under $170 a month. No small bit of change, to be sure. However, that premium payment guarantees that you and your family will receive $24,000 a year if disability strikes.
And what if you don't become disabled? To complain would be like carrying homeowner's insurance and feeling cheated because your house hasn't burned down. Besides, based on this illustration, if you paid premiums for 10 years and then became disabled, you'd gain back your premium after 10 months of receiving benefits.
Other advantages of insuring the risk: it removes the uncertainty. When you buy disability insurance, you're buying peace of mind.
Recommendation:Take steps to protect your most valuable asset by insuring at least part of your income against the danger of disability. A New York Life agent— professionally trained and experienced— can help you analyze your needs and recommend appropriate solution through insurance and financial products and concepts —at no charge to you. Click here to request a free, no obligation, consultation with a New York Life agent.
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